Property Valuation Topics: Fall 2013

by Pullman & Comley, LLC

In this Fall 2013 Issue:

Recognition of Stigma

Partially Completed Construction Controversy Resolved

Challenging Valuation Assignment Discussed

Tax Appeal Class Approved

Can Your Appraisal Survive a Daubert Attack?

Recognition of Stigma

In a rather prosaic case involving the measurement of damage to an automobile after an accident, the defendant who caused the accident sought to dismiss the plaintiff’s action because “her car [had] been fully repaired and the cost of the repairs had been paid by [her own] insurance company."  Because the plaintiff’s insurance company had also given a release to the defendant “in a subrogation proceeding commenced by (her) company,” the defendant argued that he was immune.

The plaintiff recognized that her car had been repaired but introduced appraisal testimony to the effect that “the post-repair value of [her] (BMW) car is still $7,400 less than the car’s pre-accident value.”  In other words, while her vehicle may have been restored to its pre-accident physical and mechanical condition, its market value might yet be impacted due to the stigma attached to having been in an accident.

Sitting in the New Haven Superior Court, Judge Jon C. Blue refused to dismiss the plaintiff’s claim.  While not calling the injury history a stigma, he held that the plaintiff should be allowed to introduce evidence as to market value loss caused by the accident even after the repairs had been accomplished.

Beauty may exist primarily in the eye of the beholder, but a claim of intangible damage is entitled to a closer examination by an expert.

Maher v. Cunningham, Superior Court, Judicial District of New Haven, Docket No. CV11-5033953 (March 26, 2013).

Partially Completed Construction Controversy Resolved

Several Superior Court decisions concluded that municipal assessors did not have the authority to assess the value of construction in process (CIP).  The editors of Property Valuation Topics thought these decisions did not track applicable statutes and they did not take into account the purpose of these enactments, which was to avoid the gaming of Connecticut’s October 1 assessment date.  By this we mean that before the passage of these laws, it was possible to avoid the assessment of completed construction by simply waiting until October 2 to obtain a certificate of occupancy.  As a result, the property would receive a 364-day tax holiday. 

Once these decisions were public, the General Assembly adopted curative legislation in the 2012 session, effective on October 1, 2012.  The question remained whether or not assessment of CIP prior to October 1, 2012 was permissible.

On June 25, 2013, the Supreme Court resolved the issue.  It noted that CIP had never been exempt from assessment and that if the General Assembly intended this to be the case, it would have adopted provisions to that effect.  In addition to the decided case, it is believed that a number of other appeals that challenged CIP assessments for years prior to October 1, 2012 will be affected by this ruling. 

Kasica v. Town of Columbia, Docket No. 18968 (June 25, 2013).

Challenging Valuation Assignment Discussed

In order to fund proposed new transit improvements in the vicinity of Grand Central Terminal, New York City proposes “to allow about a dozen new, primarily office towers larger than are permitted under the current zoning in the area….”  according to an article in the August 13, 2013 The Wall Street Journal.  The city will achieve this goal by creating air development rights by means of zoning amendments.  Developers who would like to purchase these new air rights will be asked to pay about $250 per square foot; the city will use the monies to carry out its proposed public improvements.

How did New York determine the square foot charge of $250? 

An estimate of value was performed by the Landauer Valuation & Advisory organization.  Landauer first determined the value of office land in the Grand Central area and applied a 35 percent discount.  Landauer is a division of Newmark Grubb Knight Frank, a well-known real estate advisory firm.  According to Robert Von Ancken, chairman of Landauer, residential or hotel uses were not considered in valuing the proposed air rights.  Landauer relied both on current market data and a methodology used in the past by market participants. 

The $250 Landauer valuation has stirred up a controversy.  Argent Ventures, which already has a dog in this argument because it owns the air rights above Grand Central, believes that $400 would be a more accurate unit value.  Air rights should not be discounted off underlying land values and according to Argent’s president, they might even be worth more than land with the same development potential.  Argent bases its opinion on work performed for it by Jerome Haims Realty Inc. and backed by another appraisal firm. However, as WSJ reporter Laura Kusisto notes in her article, “Argent has an interest in putting a higher price tag on the air rights because it will have to compete with the City to sell air rights to developers if the rezoning passes.” 

This controversy obviously pits an existing stakeholder against a municipality which needs to encourage growth in a particular sub market of the city.  Argent’s Grand Central air rights value will be sharply influenced by the city’s offerings.  The city probably cares as much about creating tax flows revenue from the buildings which would float on the newly created air rights as it does about their selling price, although the WSJ article does not mention this point.

From a valuation perspective, it would be interesting to review the Landauer and Haims studies, if only to learn in detail how these firms valued the right to create what apparently will be millions of square feet of new office product over many years.  Issues such as absorption, the impact of the transportation improvements proposed by the city on market values and the data relied upon to support the appraisers’ conclusions could offer a textbook study of a very complicated topic. 

Ultimately, the New York City Council must vote on the creation of the new air rights and their price.   

Tax Appeal Class Approved

One of the problems faced by homeowners seeking to challenge their ad valorem assessments is the frequent inability to match the costs of litigation to the economic value of potential outcomes.  As a result, relatively few homeowner tax appeals are filed in Connecticut.

Clients with homes in large condo associations, recreational communities such as Woodridge Lake and the numerous waterfront communities along Long Island Sound occasionally ask members of the Property Valuation Department whether a class action can be filed in order to save time, effort and legal fees.  When the value of property is at issue, since no two properties are identical, it is usually impossible to satisfy the requirements of class certification.  However, when there is a discrete legal issue which is applicable to all potential class members, certification can be obtained. 

This was the case recently in a class action brought by approximately 620 homeowners in the upscale Groton Long Point section of the Town of Groton.  All owners asserted that the assessor had improperly employed an “assessment method that had increased the taxable value” of their properties by a certain factor. 

Sitting in the Superior Court for the Judicial District of New Britain, Judge Henry S. Cohn concluded that the homeowners could proceed with their challenges as a class, thereby facilitating what otherwise would have been an impossible series of claims due to the legal fees which would have been incurred by plaintiffs with 620 individual actions.  As opposed to circumstances where a particular property’s valuation comes into play, Judge Cohn ruled that no individual inquiry regarding the attributes of any particular property would be necessary “if, as in this case, an allegedly improper methodology were uniformly applied to all members of . . . the proposed class.”

 John Tuohy, et al. v. Town of Groton, et al., Docket Number CV-12-6018123, July 16, 2013.  

Can your appraisal survive a Daubert attack?

That is the question posed by David Turney of Willamette Management Associates in that firm’s spring 2013 magazine.

Daubert refers to the 1993 United States Supreme Court decision which, in the federal setting, established the role of the trial judge as a “gatekeeper” in determining the admissibility of expert testimony.  The concept of “Daubert,” and cases which succeeded it, is that expert testimony must be sufficiently reliable and accepted among professionals such as real estate appraisers so as to offer a sufficiently solid foundation on which a court can rest its opinion.

Most property valuation or eminent domain appraisals submitted in Connecticut courts for judicial approval rely on established methodologies accepted by appraisers and which adequately support their conclusions with the facts.  From time to time, however, incomplete facts, reliance on unacceptable sources and lack of detailed support and explanation can result in judicial exclusion.  According to a 2011 study by PriceWaterhouseCoopers, the reliability of reports filed by 253 expert financial witnesses was challenged in 2000.  By 2011, this total, based on reported judicial decisions, had increased to 1,208.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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