Jacmax Investment v. Bushmeyer (SLCY)

January 26th, 2009

State Tax Commission of Missouri






v.) Appeal No.07-20000











Decision of the St. Louis City Board of Equalization sustaining the assessment made by the Assessor SET ASIDE.True value in money for the subject property for tax years 2007 and 2008 set at $1,003,400, residential assessed value of $190,630.Complainant appeared by Counsel Thomas R. Green, St. Louis, Missouri.Respondent appeared by Associate City Counselor, Carl W. Yates, III.Case heard and decided by Senior Hearing Officer W. B. Tichenor.


The Commission takes this appeal to determine the true value in money for the subject property on January 1, 2007.


Complainant appeals, on the ground of overvaluation, the decision of the St. Louis City Board of Equalization, which sustained the valuation of the subject property.The Assessor determined an appraised value of $1,474,500, assessed value of $280,160, as residential property.Complainant proposed a value of $1,000,000, assessed value of $190,000.A hearing was conducted on November 18, 2008, at City Hall, St. Louis, Missouri.Transcript of hearing received by the Commission on January 9, 2009.

The Hearing Officer, having considered all of the competent evidence upon the whole record, enters the following Decision and Order.

Complainant’s Evidence

Complainant prefiled the following exhibits:




Appraisal Report – David J. Sebelius, Mo. St. Cert. General Real Estate Appraiser


Written Direct Testimony of Mr. Sebelius


Exhibits A and B were received into evidence.The Appraiser concluded on a value of $1,000,000 after consideration of the three recognized approaches to value.The Sales Comparison and Income Approaches were developed.The final reconciliation of value placed reliance on both approaches.Mr. Sebelius testified under cross-examination.

Respondent’s Evidence

Respondent prefiled the following exhibits:




Appraisal Report – Lucille Pounds, Real Property Appraiser II – St. Louis City


Written Direct Testimony of Ms. Pounds


Exhibits 1 and 2 were received into evidence.The Appraiser concluded on a value of $1,600,000 after consideration of the three recognized approaches to value.The Sales Comparison and Income Approaches were developed.The final reconciliation of value placed reliance on both approaches.Ms. Pounds testified under cross-examination.




1.Jurisdiction over this appeal is proper.Complainant timely appealed to the State Tax Commission from the decision of the St. Louis City Board of Equalization.

2.The subject property is located at 7020-7030 Nottingham Avenue, St. Louis, Missouri.The property is identified by map parcel number 5034-00-0010-0.The property consists of .528 of an acre lot improved by a 40 unit – 3 story – multifamily apartment building constructed in 1958.The building contains a mix of 1 and 2 bedroom apartments.The 1 bedroom apartments (33) range in size from 400 to 607 square feet.Actual rents for the 1 bedroom apartments range from $425 – $455 per month.The 2 bedroom apartments (7) range in size from 822 to 1,400 square feet.Actual rents range from $515 to $815 per month.The building contains common laundry facilities and storage units in the basement.[1]

3.There was no evidence of new construction and improvement from January 1, 2007, to January 1, 2008, therefore the true value in money for 2007 remains the same for 2008.

4.Complainant’s evidence was substantial and persuasive to rebut the presumption of correct assessment by the Board and establish the true value of money to be $1,003,400, as of January 1, 2007.



The Commission has jurisdiction to hear this appeal and correct any assessment which is shown to be unlawful, unfair, arbitrary or capricious.The hearing officer shall issue a decision and order affirming, modifying or reversing the determination of the board of equalization, and correcting any assessment which is unlawful, unfair, improper, arbitrary, or capricious.[2]


Presumption In Appeals

There is a presumption of validity, good faith and correctness of assessment by the CountyBoardof Equalization.[3]The presumption in favor of the Board is not evidence.A presumption simply accepts something as true without any substantial proof to the contrary.In an evidentiary hearing before the Commission, the valuation determined by the Board, even if simply to sustain the value made by the Assessor, is accepted as true only until and so long as there is no substantial evidence to the contrary.

The presumption of correct assessment is rebutted when the taxpayer presents substantial and persuasive evidence to establish that the Board’s valuation is erroneous and what the fair market value should have been placed on the property.[4]Complainant’s evidence met the required standard to rebut the presumption of correct assessment and establish fair market value.

Standard for Valuation

Section 137.115, RSMo, 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.[5]It is the fair market value of the subject property on the valuation date.[6]Market value is the most probable price in terms of money which a property should bring in competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeable and assuming the price is not affected by undue stimulus.

Implicit in this definition are the consummation of a sale as of a specific date and the passing of title from seller to buyer under conditions whereby:

1.Buyer and seller are typically motivated.


2.Both parties are well informed and well advised, and both acting in what they consider their own best interests.


3.A reasonable time is allowed for exposure in the open market.


4.Payment is made in cash or its equivalent.


5.Financing, if any, is on terms generally available in the Community at the specified date and typical for the property type in its locale.


6.The price represents a normal consideration for the property sold unaffected by special financing amounts and/or terms, services, fees, costs, or credits incurred in the transaction.[7]


Methods of Valuation

Proper methods of valuation and assessment of property are delegated to the Commission.It is within the purview of the Hearing Officer to determine the method of valuation to be adopted in a given case.[8]Missouri courts have approved the comparable sales or market approach, the cost approach and the income approach as recognized methods of arriving at fair market value.[9]

Income Approach

When valuing income producing properties, the income approach will generally provide the most reliable valuation methodology.Purchasers of income producing properties look to the stream of income the property generates as the foremost indicator of value.The actual income and expenses from the property being appraised provide a sound basis for establishing the net operating income for the appraisal problem.

The income and expenses of the appraisal property are by their very existence a part of the market.They will be, in general, the most reflective and accurate indicators for the potential market for the given property.Knowledgeable purchasers will look to the actual operation of a given property in making a determination of its possible purchase price. Projections and speculations by a potential purchaser for increasing the income stream of the property are not factors that can be measured in the appraisal process.They provide no hard data from which an appraiser can conclude an opinion of value.The appraiser has no access to any such factors when seeking to determine the actions of a hypothetical purchaser.Furthermore, appraisals for appeals before the Commission are for a specific date.Therefore, a conclusion of value the gives weight to conjecture as to the possible level of improvement of the income stream at some time down the road from the valuation date is altering that valuation date.

Examination of rental rates and expenses from similar properties in the market of the property being appraised is required in sound appraisal practice.A comparison of these factors from like properties with the appraisal property provides a check to alert the appraiser of any unusual circumstances if the subject is performing well under or well above the market in general.In the absence of marked differences between the appraisal property and the general market, the actual income stream provides a solid foundation, if not the most reliable basis, to develop the income approach.

In the present case, both appraisers developed the income approach to valuation.Mr. Sebelius gave slightly greater weight to his conclusion of value under the income approach than the value derived utilizing the sales comparison analysis.[10]Ms. Pounds’ conclusion of value was slightly weighted to her sales comparison approach.[11]Both appraisers’ income approaches will be discussed in detail later in the Decision.

Sales Comparison Approach

The development of the sales comparison approach when valuing an income producing property can provide support and validation for the conclusion derived from the analysis of the operating income of the property being appraised.The mantra that the sales comparison approach measures or reflects the actions of typical buyers and sellers in the marketplace is standard boilerplate in appraisal reports.[12]While this general observation is correct, its validity as to the action of the hypothetical purchaser of a property being appraised rests squarely on the sufficiency of the market data and its comparability to the appraisal property.Herein is presented the cautionary flaw in the sales comparison approach when applied to income producing properties.

It has been the experience of the Hearing Officer the sales comparison analysis finds its greatest strength in the valuation of single-family residences.For such appraisal problems, generally an appraiser can locate an adequate universe of sales from which to select the most comparable properties and the most relevant sales as to the valuation date.Single-family residences are easily compared based on readily discernable factors, such as style, quality of construction, age, condition, room, bedroom and bathroom count, living area, location, site size and other amenities of comparability (fireplaces, garages, decks, patios, etc.).

Often appraisers appear, when valuing apartment buildings, to fall into the trap of treating apartments like single-family residences for purposes of comparability.They seem to think that a comparison of the same general factors utilized for appraising an owner occupied home is appropriate when appraising an apartment building.Such thinking can lead to a conclusion of value that is not well support by the income stream that the apartment property is either actually producing or is possibly capable of producing.

Of course, an appraiser, when valuing an apartment building, must attempt to locate time relevant sales that are as close to the subject in style, quality of construction, age, condition, room, bedroom and bathroom count, living area, location, and site size.However, once having found sufficient sales for the analysis, the critical point of comparison then becomes rental rates and expenses of the sale properties compared to the subject.The most compelling unit of comparison for apartment buildings is tied to the income stream.Assuming similar apartment styles and sizes, the rental rates provide the critical point of comparison to establish a valid economic comparison.Analysis and adjustment in the sales comparison approach must be driven by the income stream of the comparables if a sound conclusion of value is to be reached.

The sales comparison approaches of both Mr. Sebelius and Ms. Pounds will be addressed in detail later in the Decision.

Cost Approach

Both appraisers recognized and considered the cost approach.Neither deemed it appropriate to be developed in this instance.Any development of the cost approach would of necessity be tied to the development of a sound income analysis to determine depreciation from all sources for the subject property.In other words, irrespective of the replacement cost new for the subject improvements, the actual income stream dictates the depreciation – physical, functional and economic – that impacts the subject.Therefore, to a certain extent any replacement cost analysis would to a great extent be duplicative and not supportive of the income approach.The appraisers properly concluded the cost approach in this instance was not applicable.

Appropriate Method for Present Case

In the present appeal, the income approach provides the most reliable method to arrive at the indication of fair market value.A hypothetical purchaser of the subject property on

January 1, 2007, would have given most consideration to the subject’s income and expenses.Valuation of apartment properties under the income approach in most instances is the best methodology.A conclusion of value derived from a proper income analysis will provide the best indicator of value for the subject property.Therefore, this approach to value is appropriate in this instance.

Complainant’s Burden of Proof

In order to prevail, Complainant must present an opinion of market value and substantial and persuasive evidence that the proposed value is indicative of the market value of the subject property on January 1, 2007.[13]There is no presumption that the taxpayer’s opinion is correct. The taxpayer in a Commission appeal still bears the burden of proof.The taxpayer is the moving party seeking affirmative relief.Therefore, the Complainant bears the burden of proving the vital elements of the case, i.e., the assessment was “unlawful, unfair, improper, arbitrary or capricious.”[14]A valuation that is not reflective of the true value in money is then by definition unlawful, unfair and improper.

Substantial evidence can be defined as such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.[15]Persuasive 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.[16]

The evidence presented on behalf of Complainant meets both the substantial and persuasive standards.Value can properly be determined relying on the evidence to be found in Complainant’s case in chief.Complainant met its burden of proof as addressed in the finding of value by the Hearing Officer.

Hearing Officer Finds Value

The actual income and expense data for Complainant’s property was not disputed.[17]The actual rents are reflective of and fall in the range of the markets rents established by the two appraisers.[18]Accordingly, the actual income will be utilized in the development of the income approach for the determination of value.

Gross Potential Income

Two Bedroom Units

The actual monthly rentals for the two bedroom units are as follows:[19]

# Units




Monthly Total

Annual Total


2 Bed/1 Bath

822 SF





2 Bed/1 Bath

1000 SF





2 Bed/1 Bath

1000 SF





2 Bed/1 Bath

1284 SF





2 Bed/1 Bath

1400 SF





The rent for one of the 822 square foot apartments which had no rental income during 2004, 2005 and 2006 was set at the same amount of $590 as for the two apartments with data for those years.The other rents are the amounts for the month of December 2006 or the last month for which rent was reported for the unit.The potential gross income for the 2 bedroom apartments is $52,320.

One Bedroom Units

The actual monthly rentals for the one bedroom units are as follows:[20]

# Units




Monthly Total

Annual Total


1 Bed/1 Bath

400 SF





1 Bed/1 Bath

420 SF





1 Bed/1 Bath

420 SF





1 Bed/1 Bath

420 SF





1 Bed/1 Bath

459 SF





1 Bed/1 Bath

607 SF





1 Bed/1 Bath

607 SF





The rent for three of the 420 square foot apartments which had no rental income during 2004, 2005 and 2006 was set at the amount of $445.The other rents are the amounts for the month of December 2006 or the last month for which rent was reported for the unit.The potential gross income for the 1 bedroom apartments is $174,420.

The potential gross income is $226,740.

Vacancy Rate

The fact that the subject’s most recent rental history establishes a stabilized, rounded vacancy rate of 30% was not contested.[21]Mr. Sebelius concluded on a 15% vacancy rate.Ms. Pounds utilized an 11% vacancy.A vacancy rate of 15% is appropriate.

Miscellaneous Income

Miscellaneous income was calculated to be $1,973 and $2,400 by Mr. Sebelius and Ms. Pounds respectively in their appraisal reports.These amounts do not appear to be supported by the data in the pro forma for the subject.[22]Neither appraiser provide an explanation as to how they arrived at their amount for miscellaneous income.It appears that each was relying solely on income from the subject’s laundry for this income item.

The pro forma provided in the Addendum to Exhibit 1 establishes other amounts of income generated from various fees and reimbursements.Given there is no explanation as to why this additional income is not part of the income stream for the subject, there is no basis to exclude it in arriving at the effective gross income for the subject.Accordingly, the stabilized miscellaneous income for the subject is $3,200.


The appraisers approached the matter of expenses for the subject from very different perspectives.Mr. Sebelius broke down the various items of expenses and generally relied on the actual expenses reported for 2006.Ms. Pounds relied on statistics from the RBG Real Estate Service Group and Korpaca Real Estate Investor Survey and concluded expenses at 42% of effective gross income.[23]

Sebelius Expenses

The method used by Mr. Sebelius is far more persuasive.The only deficiency noted is that the appraiser neglected to provide the actual expense history.The inclusion of the pro forma in the Sebelius appraisal as was done in Exhibit 1 would have been a very welcomed addition to the appraisal report.Such actual operating information provides the Hearing Officer with a source to check against on both income and expense items.Nevertheless, a comparison of the expense conclusions by Complainant’s appraiser to the actual expenses in the pro form provides substantiation for the various expense items.

Repairs and Maintenance:The explanation provided by Mr. Sebelius for arriving at an appropriate amount for maintenance/repair was very appropriate.It appears from the reported expenses for 2004, 2005 and 2006 that Complainant is most likely expensing some items that might otherwise be covered by a reserve for replacement.Therefore it was proper for the appraiser to rely on repair and maintenance expenses from similar apartment buildings for this expense factor.[24]

Management:Mr. Sebelius concluded on an 8% of effective gross income (EGI) to account for the management fee.This is well support from the actual operation and expenses of the subject as explained in narrative of the appraisal report.[25]

Reserves:Complainant does not actually maintain a reserve for replacement account in the operation of the subject property.However, this does not mean this item cannot be and should not be accounted for in the income approach.It is appropriate to include a reserve for replacements under the itemized expense items irrespective of whether the property being appraised actually sets aside a reserve.The reserve of 8% appears reasonable given the age of the subject building.

Real Estate Taxes:Mr. Sebelius placed the amount for the 2006 real estate taxes in his itemized expenses.This is, of course, the general practice for appraisals.However, because in appeals before the Commission the real estate taxes are unknown until value is determined for the property, the proper methodology is to account for real estate taxes as an effective tax rate in the overall capitalization rate.[26]The placing of the real estate taxes as an expense item is not fatal to a conclusion of value.The remedy is that the taxes are removed as an expense item.

Allowable Expenses

The allowable expenses (rounded to the nearest $10) relying on the Sebelius appraisal are:Insurance ($6,510); Water/Sewer ($5,360); Trash ($1,275); Maintenance/Repair ($30,000); Management (8% of EGI); Utilities ($16,730); Janitorial ($2,170); and Reserves (8% of EGI).

Pounds Expense Methodology

The Hearing Officer is not persuaded by the methodology employed by Ms. Pounds to account for expenses for her income approach.The two surveys relied upon by the appraiser are recognized as sources that appraisers may consult in their appraisal work.However, in this particular instance two factors weigh against the Hearing Officer giving probative weight to the conclusion based on these sources.No copy of the actual surveys utilized was included as part of the addendum to the Pounds appraisal.The other factor is that in the addendum was located the subject’s pro forma for the three years prior to tax date.

When the actual expense data for the property one is appraising is readily available the Hearing Officer questions reliance on outside documents whose relevance as to the property being appraised may often be questionable.The relevance and probative worth of conclusions drawn from statistical surveys can only be measured if the Hearing Officer is able to examine and analyze the underlying data contained in such surveys.

For example, the number of properties that make up the conclusion reported by the survey.The type of properties surveyed in comparison to the appraised property based upon the various factors of comparability.In particular, such a factor as the ages of the survey properties in comparison to the age of the appraisal property is of great importance.The comparability of rental rates for common or like units is another important factor.

In the present case, the actual expense data demonstrates that as a percentage of EGI expenses were understated by Ms. Pounds’ reliance on RBG and Korpacz by approximately 5%.The sounder approach in the present appraisal problem was development of expense items from the subject’s actual data.Reliance on a conclusion or conclusions from general surveys does not rise to the level of substantial and persuasive evidence in the face of the actual historical performance of the property being appraised.

Capitalization Rate

The Band of Investment is a recognized and often utilized tool for development of the capitalization rate for the income approach.[27] Mr. Sebelius concluded on a capitalization rate of 9.5% developed from the band of investment analysis.[28]Ms. Pounds also utilized the band of investment to arrive at a capitalization rate of 6.8%.Both appraisers concluded on an 80% mortgage.The appraisers differed as to the loan rate and term.

Sebelius Capitalization Rate

Mr. Sebelius determined from his market analysis that a 7.5% rate on a 25 year loan was appropriate for the subject property.He reported a mortgage constant in his appraisal report of 0.0886.However, at hearing the appraiser corrected the mortgage constant asserting that it should have been 0.0966.That correction was made in Exhibit A as testified to by Mr. Sebelius at the various locations in his appraisal report on pages 68 and 69.[29]

The Hearing Officer at the hearing was without benefit of a copy of the Ellwood Tables[30] with which to verify the correctness of the mortgage constant testified to by Mr. Sebelius. However, upon examination of the Hearing Officer’s hard copy of the mortgage constant table for a 7.5% rate for a 25 year loan it is determined that the factor of .0886 as originally utilized by the appraiser was correct.The mortgage constant of .0966 that Mr. Sebelius corrected the appraisal report to is for a 20 year not a 25 year loan.[31]

Therefore, the correct capitalization rate for the loan that Mr. Sebelius relied on in his analysis would be .0200 for the equity factor and .0709 (.80 x .0886 = .0709) for the mortgage factor.This would result in a capitalization rate of .0909 before accounting for the effective tax rate.

The appraiser also performed a debt coverage ratio analysis which produced an indicated rate of .0957.The range of rates from comparable sales was from 7.60% to 11.6%.Further information showed a range of capitalization rates from 9 – 10%.Mr. Sebelius concluded on a 9.5% rate to capitalize the net operating income under his income approach.[32]

Pounds Capitalization Rate

Ms. Pounds concluded on a 6% rate for a 20 year loan should be utilized.She then calculated the mortgage factor of the capitalization rate to be 4.8.This was based upon a calculation of multiplying the 6% loan rate by .80, the mortgage portion of the band of investment.[33]This calculation is in error.[34]

The mortgage constant for a 6% – 20 year loan is .0859.[35]Therefore, the correct capitalization rate for the loan that Ms. Pounds relied on in her analysis would be .0200 for the equity factor and .0688 (.80 x .0859 = .0688) for the mortgage factor.This would result in a capitalization rate of .0888 before accounting for the effective tax rate.

Conclusion – Capitalization Rate

Both appraisers make summary statements as to the bases for arriving at both the loan rate and loan term utilized in their respective appraisals.In most instances, in cases before the Commission appraisers provide some general statement concerning surveying lenders to obtain the information to establish these two factors in the band of investment calculations.It is, of course, understood that appraisers rely upon information from lenders to determine loan rates and terms.However, appraisal reports in general, when prepared to be introduced as an exhibit in an appeal before the Commission, would be greatly strengthened if appraisers would provide more detail as to the sources contacted and verification that in fact the rates and terms are reflective of loans available at the valuation date for the appeal.

For example, the transmission letter for Mr. Sebelius’ appraisal is dated May 27, 2008, with an inspection on February 28, 2008.The appraisal is clearly for January 1, 2007.However, it is not specifically established that in seeking information on financing from lenders that the appraiser was inquiring as to lending conditions in December 2006/January 2007.

The certification for Ms. Pounds’ appraisal is 8/18/08.Here likewise, the appraisal is for January 1, 2007.Ms. Pounds at one point identifies the Korpaz 4th Quarter 2006 National Real Estate Survey as the source for her estimate of an overall rate.[36]At a later place in her appraisal the appraiser indicates “several local lenders were surveyed to determine the typical loan terms available.[37]Nevertheless, it is not clearly established that the financing terms were reflective of market conditions in December 2006/January 2007.

Appraisers should clearly establish that information relative to financing that went into the development of a capitalization rate was for the time frame encompassing the valuation date and not several months later.Beyond that providing exact sources and the information derived from each source would greatly enhance the appraisal report.For example, if contacts were made to 3 or 4 different lending institutions, a listing of those institutions and the rates and terms each provided would be appropriate.

The foregoing discussion was presented because of the dilemma presented as to the issue of the capitalization rate.The Hearing Officer is presented with two different rates – 6% and 7.5% and two different terms – 20 and 25 years.There is no basis in the evidence upon which it can be concluded that one is more appropriate than the other.The Hearing Officer, based upon his own general knowledge of loan rates in the time around January 2007 has doubts that a loan at 6% could be obtained at that time.However, that is not evidence in this case.It would be improper to base this conclusion upon the Hearing Officer’s general knowledge.

In like manner, the Hearing Officer feels that a term of 25 years is more appropriate.This is based upon the number of apartment property appraisals he has reviewed over the past 17 years for the appeals before the Commission.Again, that is not evidence in the present appeal.

Therefore, equal weight will be given to the two capitalization rates calculated above.The capitalization rate of .0899 (.0909 + .0888 = .1797 ÷ 2 = .0899) is appropriate for development of an opinion of value under the income approach.

Effective Tax Rate

The effective tax rate for the subject property is .0123%.[38]

Overall Rate

The capitalization rate of .0899 plus the effective tax rate of .0123 equals an overall rate of .1022%.

Determination of Value

Utilizing the conclusions reach above the calculation of the net operating income (NOI) and the resulting capitalization of the NOI under the direct capitalization analysis[39] produces the indicated fair market value for the subject as of January 1, 2007, of $1,003,400.




Vacancy (15%)



Additional Income


















Management (8% – EIG)









Reserves (8% – EIG)









Capitalization Rate



Effective Tax Rate



Overall Rate


$102,545 ÷ .1022 =


Indicated Value




Check Against Corrected Valuations

A simple check against the corrected income approaches of each of the appraisers provides substantiation for the value determined.Removing of the real estate taxes as an expense item from the Sebelius approach yields a NOI of $107,332.The Sebelius capitalization rate of 9.5 plus the ETR of 1.23 yields an overall rate of 10.72.The indicated value for the property would be: $1,001,230.

Applying the corrected capitalization rate of .0888 under Ms. Pounds appraisal results in an overall rate of 10.11%.Capitalizing the indicated NOI concluded by Ms. Pounds provides an indicated value of $1,180,600.

The value concluded by the Hearing Officer is within less than 1% of the Sebelius indicated value and within just less than 15% of the Pounds indicated value.The difference between the two appraisers essentially resulting from the difference in the underlying capitalization rates 8.9% versus 9.5%.

Sales Comparison Approaches Not Persuasive

Both appraisers developed a sales comparison approach.A review of the approaches failed to persuade the Hearing Officer of the probative benefit of either.Each appraiser presented four different apartment building sales. The information on each sale was the general summary data one expects to see in a sale comparison methodology for apartment properties.Overall the sale dates ranged from August 2004 to June 2007, an acceptable time frame for valuation of an apartment property on January 1, 2007.

The critical problem with comparison of apartment properties is that unless there is rental data for the sale properties no persuasive comparison to the property being appraised can be made.Without the rental data on sale properties the comparison is essentially between the structures.It is a bricks and mortar comparison.Factors such as time of sale, location, land to building ratio, effective age, etc. are items to be given consideration in the appraisal process.

However, the true comparability between a subject apartment property and any other apartment property rests in rental data – income and expenses.What any prospective buyer is going to consider is the income and expenses.It is the income stream, more than any other single factor related to any given apartment property, that will drive the decisions of the investment purchaser.The starting point is the fundamental issue of the rental rates.The next point is expenses.An appraiser can have two nearly identical buildings, however if the difference in the rental rates between the sale property and the appraisal property is 8%, 10% or more and the expenses vary by 5%, 7% or more that must be accounted for in any sale comparison analysis.Failing to know of and account for any such variances, while making an adjustment for difference such as the effective age does not to really establish a reliable indicated value.

When comparable income and expense data is not analyzed and presented in the appraisal report the Hearing Officer is left in “in the nebulous twilight of speculation, conjecture and surmise.”[40] as to the true comparability of any given property to the subject.This is exactly where the sale comparison approaches in the present case leave the Hearing Officer.In both presentations, what is being compared is not the income streams of properties, it is simply physical features.That is insufficient to form a conclusion of fair market value for an apartment property.Without data on income for the sale properties any attempt at analysis becomes simply an exercise in futility – an activity in which the Hearing Officer has never found any benefit.

Accordingly, there is no probative weight to be given to either or both of the sale comparison methodologies.The Hearing Officer understands both appraisers are presenting their appraisal reports in a form and fashion in which they have been trained.The Hearing Officer’s conclusion of no evidentiary value to the sales comparison approaches is not an assertion that the appraisal community is in error in the way in which appraisers are trained in this methodology.The type of presentations made by Mr. Sebelius and Ms. Pounds in this regard are no doubt generally accepted and well received for various purposes in the business community.The Hearing Officer is only advising that for purposes of attempting to prove fair market value in an appeal before the Commission, he requires something more in a sale comparison approach than summary data on properties and an adjustment grid.Absent sufficient economic data on sale properties to provide a comparison on income and expenses to the subject there is no logical way to conclude indicated values from the sales.

The range of per unit adjusted values presented in this instance range from $21,218 to $48,300.The casual observer would conclude that the Complainant’s appraiser low balled the sales approach, while Respondent’s appraiser high balled it.It is clear that the actual income stream only supports a per unit value of approximately $25,000.Therefore, it might seem justifiable to conclude that Mr. Sebelius’ sales comparison approach should be deemed persuasive.However, such a conclusion would not be founded upon income and expense data from the sale properties.The conclusion would be based upon the simple fact that the Sebelius sale comparison value comes closest to fitting the value established by the income approach.The Hearing Officer understands that the different approaches to value can mutually support one another.However, it is preferable that each be able on its own to establish value.

It is clear under the income analysis that the conclusion of value determined by Ms. Pounds in her sales comparison approach cannot be supported.A per unit value of $41,500 falls so far beyond the per unit value that can be properly concluded from Ms. Pounds’ income approach as to render the sales comparison approach as meaningless. The NOI determined by Ms. Pounds when capitalized utilizing the correct mortgage equity factor produces a value of $1,180,600 or approximately $29,500 per unit.Therefore, it must be concluded that the sale properties are not proper comparables to the subject, due to the basic fact that their income stream are far greater than the income stream for the subject.

In conclusion, for all of the foregoing, the Hearing Officer finds no evidentiary value to the sale comparison approaches.Any conclusion of value based on this approach would be only the Hearing Officer’s speculation, an unacceptable basis for a decision.

Evidence of Increase in Value

In any case in St. Louis City where the assessor presents evidence which indicates a valuation higher than the value finally determined by the assessor or the value determined by the board of equalization, whichever is higher, for that assessment period, such evidence will only be received for the purpose of sustaining the assessor’s or board’s valuation, and not for increasing the valuation of the property under appeal.[41]Respondent’s evidence could only be received to sustain the value of $1,474,500 and not for the purpose of increasing the true value in money to $1,600,000.

In light of the preceding analysis and conclusion of value under the income approach, Respondent’s evidence, under Ms. Pounds income approach, would only support a value of $1,180,600, therefore rebutting the presumption of correct assessment by the Board at $1,474,500.


The assessed valuation for the subject property as determined by the Assessor and sustained by the Board of Equalization for St. Louis City for the subject tax day is SET ASIDE.

The assessed value for the subject property for tax years 2007 and 2008 is set at $190,630.

A party may file with the Commission an application for review of this decision within thirty days of the mailing date set forth in the Certificate of Service for this Decision.The application shall contain specific grounds upon which it is claimed the decision is erroneous.Said application must be in writing addressed to the State Tax Commission of Missouri, P.O. Box 146, Jefferson City, MO65102-0146, and a copy of said application must be sent to each person at the address listed below in the certificate of service.

Failure to state specific facts or law upon which the appeal is based will result in summary denial. [42]

The Collector of St. Louis City, as well as the collectors of all affected political subdivisions therein, shall continue to hold the disputed taxes pending a filing of an Application for Review, unless said taxes have been disbursed pursuant to a court order under the provisions of Section 139.031.8, RSMo.

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 January 26, 2009.





W. B. Tichenor

Senior Hearing Officer




Certificate of Service


I hereby certify that a copy of the foregoing has been mailed postage prepaid on this 26thday of January, 2009, to:Thomas Green, 1830 Craig Park Court, St. Louis, MO 63146, Attorney for Complainant; Carl W. Yates III, Associate City Counselor, 314 City Hall, St. Louis, MO 63103, Attorney for Respondent; Ed Bushmeyer, Assessor, 120 City Hall, St. Louis, MO 63103; Gregory Daly, Collector, 110 City Hall, St. Louis, MO 63103.




Barbara Heller

Legal Coordinator






[1] Exhibit A; Exhibit 1.


[2] Article X, section 14, Mo. Const. of 1945; Sections 138.430, 138.431, 138.431.4, RSMo.


[3] Hermel, Inc. v. STC, 564 S.W.2d 888, 895 (Mo. banc 1978); Chicago, Burlington & Quincy Railroad Co. v. STC, 436 S.W.2d 650, 656 (Mo. 1968); May Department Stores Co. v. STC, 308 S.W.2d 748, 759 (Mo. 1958).


[4] Hermel, supra; Cupples-Hesse Corporation v. State Tax Commission, 329 S.W.2d 696, 702 (Mo. 1959).


[5] 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).


[6] Hermel, supra.


[7] Real Estate Appraisal Terminology, Society of Real Estate Appraisers, Revised Edition, 1984; See also, Real Estate Valuation in Litigation, J. D. Eaton, M.A.I., American Institute of Real Estate Appraisers, 1982, pp. 4-5; Property Appraisal and Assessment Administration, International Association of Assessing Officers, 1990, pp. 79-80; Uniform Standards of Professional Appraisal Practice, Glossary.


[8] See, Nance v. STC, 18 S.W.3d 611, at 615 (Mo. App. W.D. 2000); Hermel, supra; Xerox Corp. v. STC, 529 S.W.2d 413 (Mo. banc 1975).


[9] St. Joe Minerals Corp. v. STC, 854 S.W.2d 526, 529 (App. E.D. 1993); Aspenhof Corp. v. STC, 789 S.W.2d 867, 869 (App. E.D. 1990); Quincy Soybean Company, Inc., v. Lowe, 773 S.W.2d 503, 504 (App. E.D. 1989), citing Del-Mar Redevelopment Corp v. Associated Garages, Inc., 726 S.W.2d 866, 869 (App. E.D. 1987); and State ex rel. State Highway Comm’n v. Southern Dev. Co., 509 S.W.2d 18, 27 (Mo. Div. 2 1974).


[10] Income Approach Value – $1,015,000; Sales Comparison Approach Value – $960,000; Conclusion of Value – $1,000,000 – Exhibit A, p. 72.


[11] Sales Comparison Approach Value – $1,700,000;Income Approach Value – $1,486,000; Conclusion of Value – $1,600,000 – Exhibit 1, pp. 60-61.


[12] See, Exhibit A, p. 46; Exhibit 1, pp. 31, 61.


[13] Hermel, supra.


[14] See, Westwood Partnership v. Gogarty, 103 S.W.3d 152 (Mo. App. E.D. 2003); Daly v. P. D. George Co., 77 S.W.3d 645 (Mo. App. E.D. 2002); Reeves v. Snider, 115 S.W.3d 375 (Mo. App. S.D. 2003).Industrial Development Authority of Kansas City v. State Tax Commission of Missouri, 804 S.W.2d 387, 392 (Mo. App. 1991).


[15] See, Cupples-Hesse, supra.


[16] Brooks v. General Motors Assembly Division, 527 S.W.2d 50, 53 (Mo. App. 1975).


[17] Exhibit 1 – Addenda, post p. 63 – Pro Forma.


[18] Exhibit A, pp. 59-62;Exhibit 1, pp. 34-39.


[19] Exhibit 1 – Addenda, post p. 63 – Pro Forma.


[20] Ibid.


[21] Exhibit A, p. 62; Exhibit 1 – Addenda, post p. 63 – Pro Forma.


[22] Exhibit 1 – Addenda, post p. 63 – Pro Forma.


[23] Exhibit 1, p. 41. Note:The amount of 45% is referenced on page 40 of the appraisal report, however the amount of 42% is what was utilized in the actual expense calculation on page 41.


[24] Exhibit A, p. 64.


[25] Ibid.


[26] Exhibit 1, p. 45.


[27] See, The Appraisal of Real Estate, Twelfth Edition, Appraisal Institute, pp. 534 – 537.


[28] Exhibit A, pp. 67-70.


[29] Tr. 5:2 – 6:10.


[30] Ellwood Tables for Real Estate Appraising and Financing developed by the late L. W. Ellwood, M.A.I.


[31] Compound Interest Tables, American Institute of Real Estate Appraisers of National Association of Realtors, T-32.


[32] Exhibit A, pp. 69 – 70.


[33] Exhibit 1, p. 44.


[34] Tr. 56:20 – 59:23.


[35] Compound Interest Tables, American Institute of Real Estate Appraisers of National Association of Realtors, T-28.


[36] Exhibit 1, p. 43.


[37] Exhibit 1, p. 44.


[38] Exhibit 1, p. 45.


[39] Exhibit A, p. 67; Exhibit 1, p. 43.


[40] See, Rossman v. G.G.C. Corp. of Missouri, 596 S.W.2d 469, 471 (Mo. App. 1980).

[41] Section 138.060, RSMo; 12 CSR 30-3.075.


[42] Section 138.432, RSMo.