HARLEY & SUSIE BOGUE, INC., )
v. ) Appeal Number 03-32091
CATHY RINEHART, ASSESSOR, )
CLAY COUNTY, MISSOURI, )
DECISION AND ORDER
The value approved by the Board of Equalization is SUSTAINED.
The issue in this case is the true value in money of tract of land with residential and agricultural improvements, specifically a hog farm with breeding, farrowing, nursery and finishing buildings.
A hearing was held in the above matter in the Clay County Administration Building, Liberty Missouri on April 21, 2004. Complainant was represented by counsel, Randall Crawford and by an appraiser, Boyd Harris. Respondent was represented by counsel, Mark Murphy and by an appraiser, Gary Maurer.
The assessor originally valued the residential portion of the property at $121,700 (assessed value $23,130). Said value was approved by the Board of Equalization. Complainant now asserts a value of $80,195 (assessed value $15,240). Respondent asserts a market value of $152,100 (assessed value $29,090) in support of the original value approved by the Board of Equalization.
The assessor originally valued the agricultural portion of the property at $345,900 (assessed value $41,510). Said value was approved by the Board of Equalization. Complainant now asserts a value of $139,312 (assessed value $16,720). Respondent asserts a market value of $382,900 (assessed value $45,950) in support of the original value approved by the Board of Equalization.
Complainant and Respondent presented appraisal reports, prepared by state certified appraisers, in support of their opinions of value.
FINDINGS OF FACT
1. The subject property is a 148.9 acre tract located in the northwest corner of Clay County, Missouri, two miles southeast of Holt, Missouri. The property is identified as parcel number 07-304-00-01-003.00; more commonly known as 17913 Bogue Road, Holt, Missouri.
2. The subject area is composed of predominantly family farms although recent sales have included sales for future residential development.
3. The subject real property is improved with a 1,400 square foot brick raised ranch built in 1969. The residence sits over a full, partially finished basement. The house has three bedrooms, two baths, and a one-car basement garage. The remaining life of the house is approximately 31 years.
4. The house and three acres of land are classified as residential. Additionally, there is a two-car detached garage which is also classified as residential.
5. The assessor originally valued the residential portion of the property at $121,700 (assessed value $23,130). Said value was approved by the Board of Equalization. Complainant now asserts a value of $80,195 (assessed value $15,240). Respondent asserts a market value of $152,100 (assessed value $29,090) in support of the original value approved by the Board of Equalization.
6. Although there are no recent sales of larger tracts containing residential property, there are a number of sales or rural residential properties on small acreages which may be adjusted to reflect the value of the subject residential property.
7. The sales comparison approach is the best method of determining the value of the subject residential property. The cost approach is not reliable because of the age of the improvements. The income approach is not reliable because of the lack of rental properties in the area.
8. The remaining land and improvements are classified as agricultural. Those improvements include:
120 square foot utility shed built in 1969
4,800 square foot metal storage shed built in 1950
704 square foot concrete and metal storage shed built in 1971
2,208 square foot concrete and metal hog confinement building built in 1970
10,000 bushel grain bin built in 1965
10,000 bushel grain bin built in 1965
12,000 bushel grain bin built in 1970
grain handling complex built in 1965
400 square foot metal storage shed built in 2000
6,500 square foot concrete and metal hog breeding building built in 2000 having a useful life of 20 years
8,200 square foot concrete and metal hog farrowing and nursery building built in 2000, having a useful life of 20 years
8,200 square foot concrete and metal hog finishing building built in 2000 having a 20 year life
8,200 square foot concrete and metal hog finishing building built in 2000 having a 20 year life
various fixtures, including automated heating and air conditioning and automatic feeders which are deemed to be fixtures by reason of the fact that Complainant failed to declare same as personal property.
9. Complainant paid $890,000 for the 1999/2000 agricultural improvements. Most of the valuation dispute concerns the value of these newer improvements.
10. The assessor originally valued the agricultural portion of the property at $345,900 (assessed value $41,510). Said value was approved by the Board of Equalization. Complainant now asserts a value of $139,312 (assessed value $16,720). Respondent asserts a market value of $382,900 (assessed value $45,950) in support of the original value approved by the Board of Equalization.
11. The current use of the property is for agricultural purposes, i.e., feeding, breeding and management of livestock (Section 137.016.1(2), RSMo 2000). The immediate most suitable economic use of the property is for the feeding, breeding and management of hogs (Section 137.016.5, RSMo. 2000).
12. The true value in money of land which is in use as agricultural property shall be that value which such land has for agricultural use. The true value of buildings or other structures customarily associated with agricultural use shall added to the value of the agricultural land to determine the value of the agricultural property (Section 137.017.1, RSMo. 2000). Land which is classified as agricultural, shall remain in this category as long as the owner of the land complies with the provisions of Sections 137.017 through 137.021 (Section 137.017.2, RSMo 2000).
13. The evidence shows that there is a market for hog farms, and a number of sales of hog farms in Missouri. Additionally, a new hog confinement area is being built in Platte County, adjacent to Clay County, indicating a continuing demand for hog facilities.
14. The sales comparison approach is the best method for determining the value of the subject agricultural property. The cost approach has some value, but that value is limited because of an inability to measure depreciation. The income approach is not helpful in valuing the subject agricultural property because swine containment facilities are typically owner-occupied.
15. The evidence presented by Complainant is not credible, as more fully discussed below.
16. Respondent is precluded from advocating a value higher than the value initially determined by the Assessor or the Board of Equalization, whichever is higher. However, Respondent=s appraised value validates the value found by the Board of Equalization. Respondent=s appraisal is more reliable than Complainant=s appraisal because the conclusions of value under the sales approach are based upon market sales of similarly improved properties.
17. No evidence was presented which would indicated that there had been any new construction or property improvements between January 1, 2003, and January 1, 2004, which would warrant a change in the assessed value of the subject property.
18. The correct value for the residential portion of the property on January 1, 2003, and January 1, 2004, was $121,700 (assessed value $23,130).
19. The correct value for the agricultural portion of the property on January 1, 2003 and January 1, 2004, was $345,900 (assessed value $41,510).
CONCLUSIONS OF LAW
Section 137.115, RSMo. 2000 requires that property be assessed based upon its true value in money which is defined as the price a property would bring when offered for sale by one willing or desirous to sell and bought by one who is willing or desirous to purchase but who is not compelled to do so. St. Joe Minerals Corp. v. State Tax Commission, 854 S.W.2d 526, 529 (Mo. App. E.D. 1993); Missouri Baptist Children=s Home v. State Tax Commission, 867 S.W.2d 510, 512 (Mo. banc 1993). It is the fair market value of the subject property on the valuation date. Hermel, Inc. v. State Tax Commission, 564 S.W.2d 888, 897 (Mo. banc 1978).
However, AFor general property assessment purposes, the true value in money of land which is in use as agricultural and horticultural property, as defined in section 137.016, shall be that value which such land has for agricultural or horticultural use. The true value of buildings or other structures customarily associated with farming, agricultural, and horticultural uses, excluding residential dwellings and related land, shall be added to the use value of the agricultural and horticultural land to determine the value of the agricultural and horticultural property under sections 137.017 to 137.021. After it has been established that the land is actually agricultural and horticultural property, as defined in section 137.016, and it has been valued and assessed accordingly, the land shall remain in this category as long as the owner of the land complies with the provisions of sections 137.017 to 137.021.@ Sections 137.017.1 and 137.017.2, RSMo. 2000.
In order to prevail, a party must present an opinion of value and then must present substantial and persuasive evidence that its proposed value is indicative of the true value of the subject property on January 1, 2003, in order to have that value accepted. Hermel, Inc. v. State Tax Commission, 564 S.W.2d 888, at 897. ASubstantial@ evidence can be defined as such relevant evidence as a reasonable mind might accept as adequate to support a conclusion. See, Cupples-Hesse Corporation v. State Tax Commission, 329 S.W.2d 696, 702 (Mo. 1959). APersuasive@ evidence is that evidence which has sufficient weight and probative value to convince the trier of fact. The persuasiveness of evidence does not depend on the quantity or amount thereof but on its effect in inducing belief. Brooks v. General Motors Assembly Division, 527 S.W.2d 50, 53 (Mo. App. 1975).
The Hearing Officer is not bound by any single formula, rule or method in determining true value in money, but is free to consider all pertinent facts and estimates and give them such weight as reasonably they may be deemed entitled. The relative weight to be accorded any relevant factor in a particular case is for the Hearing Officer to decide. St. Louis County v. Security Bonhomme, Inc., 558 S.W.2d 655, 659 (Mo. banc 1977); St. Louis County v. STC, 515 S.W.2d 446, 450 (Mo. 1974); Chicago, Burlington & Quincy Railroad Company v. STC, 436 S.W.2d 650 (Mo. 1968).
The Hearing Officer as the trier of fact may consider the testimony of any expert witness and give it as much weight and credit as she may deem it entitled to when viewed in connection with all other circumstances. The Hearing Officer is not bound by the opinion of experts who testify on the issue of reasonable value, but may believe all or none of the expert=s testimony and accept it in part or reject it in part. Beardsley v. Beardsley, 819 S.W. 2d 400, 403 (Mo. App. 1991); Curnow v. Sloan, 625 S.W. 2d 605, 607 (Mo. banc 1981).
A party does not meet his burden of proof if evidence on any essential element of his case leaves the Commission Ain the nebulous twilight of speculation, conjecture or surmise.@ Rossman v. G.F.C. Corporation of Missouri, 596 S.W. 2d 469, 472 (Mo. App. 1980).
Respondent=s Sales Comparison Approach Supports Board Value
Respondent=s appraiser produced sales of three hog confinement farms in support of his opinion of value. After making adjustments for areas of significant variation, those sales indicate a value for Complainant=s agricultural property of $382,900. The most similar sale, Sale 1, had older and smaller buildings than the subject and sold in June of 2000 for $350,000. Although all of the sales had older and smaller improvements, they maintained a higher number of hogs than the subject property. Respondent=s appraiser made an additional adjustment for the Ahog units@ on each farm.
The value approved by the Board of Equalization for the subject agricultural improvements is supported by market sales.
Likewise, Respondent=s appraiser presented sales of residential properties which were similar to the residential portion of the subject property and which were located between three and six miles away from the subject property. After adjustments, those sales indicate a range of value for the subject residential property of $134,800 to $160,190. Respondent=s appraiser did not make an adjustment for the impact of the close proximity of the hog confinement area. However, we cannot say that the Board did not consider what, if any, impact location had when adopting the $121,000 value for the residential portion of the property.
Complainant=s Evidence is Not Credible
Complainant has the burden to present substantial and persuasive evidence in support of its opinion of value in order to have the decision of the Board of Equalization set aside.
The hearing officer is called upon to weigh the opinion and judge credibility of expert witnesses and evidence. Land Clearance for Redevelopment v. Kansas University, 797 S.W.2d 495 (WD 1990). An expert=s opinion must be founded on substantial information and not mere conjecture or speculation, and there must be a rational basis for the information. Missouri Pipeline Co. v. Wilmes, 898 S.W.2d 682 (Mo. App. 1995). The factual underpinnings of an expert witness= opinion goes to the weight and credibility of that opinion. Missouri Highway and Transportation Commission v. Kansas City Cold Storage, 948 S.W.2d 679. Testimony cannot be substantial or persuasive unless it is first found to be credible.
There are several areas of testimony that are problematic, raising concerns about the credibility of Complainant=s evidence.
1. Improper Valuation Date. The only proper date of valuation for the subject property is January 1, 2003. At the prehearing conference in October 2003, Complainant=s appraiser stated that the county=s value of $121,700 for the residential portion of the property was correct. However, at hearing Complainant=s appraiser testified that the correct value of the residential portion was only $80,195, as of April 14, 2004. In both instances, Complainant=s appraiser had presented an appraisal report in support of his opinion of value. At hearing, there was extensive cross examination about whether the October, 2003 value or the April, 2004 value was most accurate. Ultimately, Complainant=s appraiser decided that the April 2004 opinion was the most accurate reflection of the value of the property on January 1, 2003. Complainant=s appraiser testified that the property value probably hadn=t changed between January 1, 2003 and April, 2004 but also testified that he had recognized additional depreciation from his October, 2003 value and his April 2004 value. From the conversation between Complainant=s appraiser and counsel for Respondent, it is evident that Complainant=s appraiser had not considered the valuation date to be important prior to the time that he was challenged (Tr. 32-36; 49-54). Because property values tend to change over time, a proposed value for April 2004 is not substantial and persuasive evidence of the value of the property on January 1, 2003. It is not sufficient to assert that the value Aprobably@ had not changed.
2. Failure to Use Sales Approach for Residential Valuation. Although there were a number of recent rural residential sales of smaller tracts, Complainant=s appraiser testified that none of these sales could be used as comparable sales to determine value of the residential portion of this property. Complainant=s appraiser stated that the only possible residential comparable that could be used in this instance was a rural sale with a similar acreage. Having failed to find a residential sale with approximately 148 acres in this area of Clay County, and not being willing to adjust smaller sales, Complainant=s appraiser relied on the cost approach to determine the value of the residential portion of the property.
Failure to use sales of smaller acreage improved properties was an error. Not only do sales provide the best indicator of market value, they can also be adjusted to recognize market reaction to variations. It would have been an easy process to use comparable residential sales and adjust for excess acreage. This methodology is accepted in the appraisal industry and would have yielded a more accurate determination of value for the subject residential property.
Failure to use comparable sales left the appraiser relying on a cost approach to value a 35 year old home. It is an accepted premise in the appraisal industry that, as a property ages, a cost approach becomes less reliable because depreciation becomes difficult to measure accurately. A cost approach is best used on a new property; a special use or unique property; or a property which cannot be valued by a sales or income approach.
Not only is Complainant=s cost approach unreliable because of age, it is also unreliable because of methodology.
In valuing the residence under the cost approach, Complainant=s appraiser calculated replacement cost new and applied 50% physical deprecation. However, he then deducted another 15% for functional obsolescence. As noted in Complainant=s appraisal, it is an appraisal error to use a functional obsolescence adjustment when using replacement cost new. A. . .Inherent by definition in utilizing Replacement Cost is the elimination of any functional obsolescence. . .@ (Ex. 1, p. 26, see also Tr. p. 20). This very fundamental error raises questions about the quality and accuracy of the other adjustments within Complainant=s appraisal report.
3. Unsupported Economic Obsolescence Adjustment. Complainant=s appraiser developed his 85% economic obsolescence adjustment for the hog containment buildings based upon a single sale (the Turney sale) which has questionable validity. The fact that the lender was selling the property suggests that the property had been foreclosed. The circumstances around the actual sale, marketing efforts, and the time on the market were not disclosed and it is impossible to ascertain if this is a discounted price or a true reflection of economic obsolescence and market value.
Although Mr. Harris testified that his research indicated that other similar properties suffered from 90% economic obsolescence; no other sales were presented to bolster the questionable Turney sale.
Economic obsolescence occurs when factors outside the property impinge on the property=s value. Economic obsolescence is always a questionable deduction and strict proof is required to devalue a property based upon economic obsolescence. While it is true that many people do not want to live around a swine production facility, this fact tends to devalue the surrounding property more than it devalues the swine production facility.
4. Wrong Highest and Best Use. Complainant=s appraiser focused on the wrong highest and best use. Because Mr. Harris was so focused on potential future residential development of the property, it was his position that the improvements would be salvaged off because they added no value for that potential highest and best use (Tr. 30). He stated: A. . .[T]here=s no question that the highest and best use of this property is for rural residential development. And the buildings have to be valued, if they can at all, for the buildings to have value, that have to be consistent with the highest and best use of the land. If the buildings are not consistent with the highest and best use of the land, they cannot have value. . .@ (Tr. 58, 59). AThe improvements are . . .not conducive to the as vacant land use, and don=t offer significant value.@ (Tr. 60).
Although Mr. Harris was willing to speculate about many other hypothetical uses, he adamantly refused to concede that the highest and best use of the subject property could be as improved. Based upon this position, Mr. Harris used sales of raw crop land which had been purchased for subsequent residential development rather than sales of swine production facilities.
While it is true that the farm land may be more valuable if it were sold and subdivided into residential properties, state law does not allow us to value property in this manner when there is an existing agricultural use. When a property is being used for agricultural purposes, it must be valued as though the agricultural use was the highest and best use. The best comparable sales for the subject property are sales of other swine production facilities.
5. Unsupported Conclusions of No Market Value. Complainant=s appraiser asserts that there is no market for the subject agricultural property as improved. He suggests (a) that the subject property has no value because it has no contract with a major vertical producer; and (b) that farrow to finish operations are undesirable and cannot be converted into single use properties. Mr. Harris=s own evidence suggests that these conclusions are not true.
(a) Properties sell without contracts. Mr. Harris asserts that hog confinement operations that do not have contracts with vertical producers – such as the subject property – cannot be sold. Mr. Harris further asserts that the sales comparison approach cannot be utilized to value the subject property because all of the value in the recent sales of swine containment facilities is in their intangible contract value.
Attachment 8 to Mr. Harris=s appraisal report is a property which sold for $590,000. The buyer procured a new contract after the sale. This suggests that the contract was not a factor in determining the sale price of the property.
Likewise, Mr. Harris=s attachment 9 is a property which sold for $335,000. It shows that the sale was contingent upon the buyer being able to obtain a contract from Cargill. This demonstrates that the sales price did not include the value of a continuing contract with a vertical producer.
Mr. Harris points to one sale (the Turney sale) where a swine production facility sold for substantially less than it=s replacement cost new less depreciation, which he asserts supports his opinion that a non-contract swine production facility has little value. However, that sale may have been a distress situation since it was sold by a lender to a local farmer. Mr. Harris=s assertion that Amarket data will show that non-contract swine production units have no demand to be purchased@ (Tr. 15) is not supported by this sale.
There is no other market data presented which suggests that a contract adds anything to the value of a property. There was no explanation for why the subject property did not have such a contract; how hard it would be to obtain such a contract; if these contracts were even transferrable to subsequent owners; or what value having such a contract would add to the property. There are no factual underpinnings to Mr. Harris=s conclusion.
(b) Properties are converted to different uses. Mr. Harris testified that the subject property was not marketable because it was a farrow to finish operation, which no purchaser would want. He further testified that conversions would be cost prohibitive. Finally, he testified that all farrow to finish operations that were for sale were sitting empty and unwanted. Attachment 8 to Mr. Harris=s appraisal report was a farrow to finish operation which was converted to a single use in 1997. Likewise, Mr. Harris=s attachment 9 is a property which was a conversion of a nursery into a farrowing building. Both sales indicate that buyers are willing to make conversions to suit their needs. If farrow to finish operations were not selling, there should be some examples of unsold operations that Mr. Harris could have pointed to, but none were presented.
The very fact that Complainant would spend $890,000 to construct a farrow to finish operation suggests that the appraiser=s opinion is incorrect. A prudent business organization would not spend $890,000 to build something which would be worth no more than $68,000 – and maybe as little as zero – two or three years later. This defies common sense. And there was no testimony which would suggest that Complainant, or its principals, had a history of acting in an imprudent manner. In the absence of evidence, we will not presume poor business practices to support a reduction in value.
Complainant=s evidence fails on many fronts – any one of which is fatal to a finding of credibility. When a party asserts that its property has absolutely no value for the use for which it was improved (Tr. 66-67), it is tantamount upon that party to present substantial and persuasive evidence to that end. An appraiser=s opinion, without supporting market data, will not carry the day. Complainant has failed to meet its burden of proof and has failed to overcome the presumption in favor of the Board of Equalization.
The value initially determined by the Assessor and approved by the Board of Equalization is AFFIRMED.
A party may file with the Commission an application for review of a hearing officer decision within thirty (30) days of the mailing of such decision. The application shall contain specific detailed grounds upon which it is claimed the decision is erroneous. Failure to state specific facts or law upon which the appeal is based will result in summary denial.
If an application for review of a hearing officer decision is made to the Commission, any protested taxes presently in an escrow account in accordance with this appeal shall be held pending the final decision of the Commission. If no application for review is received by the Commission within thirty (30) days, this decision and order is deemed final and the Collector of Clay County as well as the collectors of all affected political subdivisions therein, shall disburse the protested taxes presently in an escrow account in accord with the decision on the underlying assessment in this appeal. If any protested taxes have been disbursed pursuant to Section 139.031(8), RSMo, either party may apply to the circuit court having jurisdiction of the cause for disposition of the protested taxes held by the taxing authority.
Any Finding of Fact which is a Conclusion of Law or Decision shall be so deemed. Any Decision which is a Finding of Fact or Conclusion of Law shall be so deemed.
SO ORDERED July 9, 2004.
STATE TAX COMMISSION OF MISSOURI