State Tax Commission of Missouri
LOWE’S HOME CENTERS, INC,)
v.)Appeal Number 06-34040
JEFFERSON COUNTY, MISSOURI,)
AFFIRMING HEARING OFFICER DECISION
UPON APPLICATION FOR REVIEW
On June 6 2008, Hearing Officer Maureen Monaghan entered her Decision and Order (Decision) affirming the decision of the Jefferson County Board of Equalization sustaining the assessment by the Jefferson County Assessor.
Complainant timely filed his Application for Review of the Decision.Complainant states as his grounds (1) The Decision was contrary to the weight of the evidence on the whole record; (2) The Decision was unsupported by competent and substantial evidence on the whole record; and (3) The Decision was contrary to the law applicable to such appeals.The Complainant further stated as specific grounds:
(1)The Hearing Officer’s Decision is “only an interpretation and criticism of Complainant’s evidence” and makes little reference to the Respondent’s evidence;
(a)Complainant alleges that the Hearing Officer did not understand that Land Sale 1 is an appropriate sale to include in the appraisal and that the cross-examination on Land Sale 1 involved two transactions.
(b)The Hearing Officer did not mention in her Decision that on cross-examination of the Respondent’s expert Exhibits C and D were admitted into evidence.Exhibits C and D pertained to the sale of Lowe’s stores in South Carolina.(Tr. 121-122)Respondent’s expert testified that he had not seen those sales before.Complainant states he finds it curious that the Respondent’s expert never saw the sales and the sales strongly support his opinion of value.
(c)Respondent offered Exhibits 3, 4, and 5 which are appraisal reports on Lowe’s completed by the Complainant’s expert for other appeals.The Complainant states that Comparable Sale 1 Home Quarters sold for $3,200,000.It later sold for $16,400,000 with a lease.The Respondent stated he disagreed with the conclusions of the attorney regarding the sale.
(d)The Hearing Officer’s Decision is contrary to the weight of the evidence on the WHOLE record and unsupported by competent and substantial evidence on the WHOLE record.Further, the valuation does not reflect fair market value or the “economic realities.”
(e)The Hearing Officer’s evaluation of the Complainant’s expert is against the weight of the evidence.
CONCLUSIONS OF LAW
Standard Upon Review
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 an expert witness and give it as much weight and credit as he may deem it entitled to when viewed in connection with all other circumstances.The Hearing Officer is not bound by the opinions 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.St. Louis County v. Boatmen’s Trust Co., 857 S.W.2d 453, 457 (Mo. App. E.D. 1993); Vincent by Vincent v. Johnson, 833 S.W.2d 859, 865 (Mo. 1992);Beardsley v. Beardsley, 819 S.W.2d 400, 403 (Mo. App. 1991); Curnow v. Sloan, 625 S.W.2d 605, 607 (Mo. banc 1981).
The Commission will not lightly interfere with the Hearing Officer’s Decision and substitute its judgment on the credibility of witnesses and weight to be given the evidence for that of the Hearing Officer as the trier of fact.Black v. Lombardi, 970 S.W.2d 378 (Mo. App. E.D. 1998); Lowe v. Lombardi, 957 S.W.2d 808 (Mo. App. W.D. 1997); Forms World, Inc. v. Labor and Industrial Relations Com’n, 935 S.W.2d 680 (Mo. App. W.D. 1996); Evangelical Retirement Homes v. STC, 669 S.W.2d 548 (Mo. 1984); Pulitzer Pub. Co. v. Labor and Indus. Relations Commission, 596 S.W.2d 413 (Mo. 1980); St. Louis County v. STC, 562 S.W.2d 334 (Mo. 1978); St. Louis County v. STC, 406 S.W.2d 644 (Mo. 1966).
A review of the record in the present appeal provides support for the determinations made by the Hearing Officer.There is competent and substantial evidence to establish a sufficient foundation for the Decision of the Hearing Officer.A reasonable mind could have conscientiously reached the same result based on a review of the entire record. The Commission finds no basis to support a determination that the Hearing Officer acted in an arbitrary or capricious manner or abused his discretion as the trier of fact and concluder of law in this appeal.Hermel, Inc. v. STC, 564 S.W.2d 888 (Mo. 1978); Black v. Lombardi, 970 S.W.2d 378 (Mo. App. E.D. 1998); Holt v. Clarke, 965 S.W.2d 241 (Mo. App. W.D. 1998); Smith v. Morton, 890 S.W.2d403 (Mo. App. E.D. 1995); Phelps v. Metropolitan St. Louis Sewer Dist., 598 S.W.2d 163 (Mo. App. E.D. 1980).
Specific Examples of Sales
The Complainant cited several examples in the record in which he disagreed with the Hearing Officer’s opinion of the evidence.
(a) Land Sale 1
Complainant alleges that the Hearing Officer did not understand that Land Sale 1 is an appropriate sale to include in the appraisal and that cross-examination of the Complainant’s evidence regarding the sale of that land was two different transactions.The Decision clearly sets out that there were two transactions regarding this property and sets out the errors made by the Complainant’s expert.The Decision sets forth that the Complainant’s expert used the sale ofland which occurred on September 2004.On cross-examination, the Complainant’s expert stated that a sale of this land occurring after the sale in September 2004 but prior to the valuation date would be relevant and that he was not aware the property had resold.The Respondent provided evidence that the land did sell after the sale in September but before the valuation date.On
cross-examination the Complainant’s expert was asked if he was incorrect about the size of the parcel.The Respondent provided evidence that the parcel was not 14 acres but 5.5 acres.
(b)Cross Examination of Respondent’s Expert
The Hearing Officer did not mention in her Decision that on cross-examination of the Respondent’s expert Exhibits C and D were admitted into evidence.Exhibits C and D pertained to the sale of Lowe’s stores in South Carolina.(Tr. 121-122).Respondent’s expert testified that he had not seen those sales before.Complainant states the sales strongly support his opinion of value.
The Hearing Officer’s opinion focused on the evidence presented by the Complainant rather than the deficiencies of the Respondent’s evidence as it is the Complainant’s burden to rebut the presumption that the Board of Equalization’s valuation was incorrect and establish market value by substantial and persuasive evidence.
(c) Comparable Sale 1 – Home Quarters
Respondent offered Exhibits 3, 4, and 5 which are appraisal reports on Lowe’s completed by the Complainant’s expert.The Respondent offered those to argue that the reports are “cookie cutter” and therefore the Complainant’s appraisal report should be dismissed summarily and not be given any weight.By the details of her opinion, it is apparent that the Hearing Officer did not dismiss the appraisal report summarily but considered the entire report in determining whether the Complainant met his burden of proof.
The Complainant, using Exhibits 3, 4, and 5, refers to Comparable Improved Sale 1, a Home Quarters in Kansas City, as proof of valuation.The sale should not have been considered by the Complainant’s appraiser as it was a sale due to bankruptcy.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.Bankruptcy is an undue stimulus and effects the ability of the seller to act prudently.
The Complainant also states that the Hearing Officer should have found his expert persuasive.The Hearing Officer as the trier of fact may consider the testimony of an 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 opinions 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.St. Louis County v. Boatmen’s Trust Co., 857 S.W.2d 453, 457 (Mo. App. E.D. 1993); Vincent by Vincent v. Johnson, 833 S.W.2d 859, 865 (Mo. 1992);Beardsley v. Beardsley, 819 S.W.2d 400, 403 (Mo. App. 1991); Curnow v. Sloan, 625 S.W.2d 605, 607 (Mo. banc 1981).
It is apparent from the Decision that the Hearing Officer did not find the Complainant’s expert credible and rejected the expert’s testimony.At least very least, the opinion of the expert was not based on or supported by sufficient facts or evidence and therefore was not substantial or probative.The facts upon which an expert’s opinion is based, like the facts sufficient to support a verdict, must measure up to the legal requirements of substantiality and probative force; the question of whether such opinion is based on and supported by sufficient facts or evidence to sustain the same is a question of law for the court.Robinson v. Empiregas Inc. of Hartville, 906
S.W.2d 829 (S.D. 1995).Nance v. Tax CommissionMo 18 S.W.3d 611.(App WD 2000)The Commission is the judge of the credibility of the witness and of the evidence.
Record as a Whole and Burden of Proof.
The Complainant finally argues that the Decision was contrary to the weight of the evidence on the whole record and the Hearing Officer’s Decision is “only an interpretation and criticism of Complainant’s evidence” and makes little reference to the Respondent’s evidence.
The Complainant’s argument disregards the presumption in favor of the Board of Equalization and burden of proof on a taxpayer in a property tax appeal.A presumption exists in favor of the correctness of the valuation of the tax assessor.To obliterate the presumption, substantial controverting evidence is required.Hermel, Inc v. State Tax Commission, 564 S.W.2d 888, (S. Ct. 1978)Nance v. Tax CommissionMo 18 S.W.3d 611.(App WD 2000)
As stated, a presumption exists in favor of the correctness of the valuation of the tax assessor and even if the presumption is overcome, the burden of proof of the facts and inferences would still rest on the Complainant because it is the moving party seeking affirmative relief. Snider, Hermel, & Cupples-Hesse Corporation v. State Tax Commission, 329 S.W.2d 696 (Mo. 1959)The taxpayer in a Commission tax appeal, even after overcoming the presumption, still bears the burden of proof and must show that the property was improperly valued.Westwood Partnership v. Gogarty, 103 S.W.3d 152 (Mo. App. ED 2003).Taxpayers must present substantial and persuasive evidence that the proposed value is indicative of the market value of the subject property on the tax day.Substantial evidence is such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.Persuasive evidence is that evidence which has sufficient weight and probative value to convince the trier of fact.The persuasiveness does not depend on the quantity but on its effect.Daly v. PD George, 77 S.W.3d 645, (Mo App ED 2002).
After the review of all the evidence, the Hearing Officer found that the Complainant did not rebut the presumption of correct valuation and the Complainant’s evidence did not meet the necessary standard of substantial and persuasive on the issue of fair market value of the subject property.The Hearing Officer found that “[t]he evidence presented and used as the basis of the expert’s opinion was so deficient and defective that it did not have sufficient weight or probative value.”
As to the Complainant’s valuation using the sales comparison approach, the Hearing Officer found that the selection of properties and the analysis of the properties selected was not persuasive evidence of value.The Hearing Officer found that the properties selected by the Complainant’s appraiser were not comparable.The Hearing Officer also did not find the evidence substantial or persuasive as the appraiser did not know the terms of the sale, the appraiser included “sales” which should not have been included, i.e. foreclosures, the appraiser estimated the sales price rather than using actual sales price,gross adjustments up to 70%.
The Hearing Officer was not persuaded by the income approach which the appraiser used to support his sales comparison approach.
As to the Complainant’s valuation using the cost approach, the Hearing Officer found the appraiser’s land sales, vacancy rate, depreciation, and expenses were questionable.Further the Hearing Officer found that the actual costs for the land and improvements to be persuasive.The Cost Approach is particularly applicable in this case as the property being appraised involves relatively new improvements and represent the highest and best use of the land.
The Commission upon review of the record and Decision in this appeal, finds no grounds upon which the Decision of the Hearing Officer should be reversed or modified.Accordingly, the Decision is affirmed.
Judicial review of this Order may be had in the manner provided in Sections 138.432 and 536.100 to 536.140, RSMo within thirty days of the date of the mailing of this Order.
If judicial review of this decision is made, any protested taxes presently in an escrow account in accordance with this appeal shall be held pending the final decision of the courts unless disbursed pursuant to section 139.031.8, RSMo.
If no judicial review is made within thirty (30) days, this decision and order is deemed final and the Collector of Cole 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.
SO ORDERED September 30, 2008.
STATE TAX COMMISSION OF MISSOURI
Bruce E. Davis, Chairman
Jennifer Tidwell, Commissioner
Charles Nordwald, Commissioner
DECISION AND ORDER
Decision of the Jefferson County Board of Equalization sustaining the assessment made by the Assessor is AFFIRMED.Hearing Officer finds presumptions of correct assessment were not rebutted. True value in money for the subject property for tax year 2006 is set at $13,012,400, assessed value of $4,164,000.
Complainant appeared by Counsel, Wayne A. Tenenbaum,Leawood,Kansas.
Respondent appeared in person and by Counsel, David Senkel.
Case heard and decided by Hearing Officer Maureen Monaghan.
The Commission takes this appeal to determine the true value in money for the subject property on January 1, 2006, under the economic conditions as existing on January 1, 2005.
Complainant appeals, on the ground of overvaluation, the decision of the Jefferson County Board of Equalization, which sustained the valuation of the subject property.The Assessor determined an appraised value of $13,012,400, assessed value of $4,164,000, as commercial property.The Board of Equalization sustained the valuation.Complainant, at the time of filing the appeal, proposed a value of $6,800,000, assessed value of $2,176,000.A hearing was conducted on March 14, 2008, at theJeffersonCountyAdministrationBuilding,Hillsboro,Missouri.Complainant, at the time of the hearing, proposed a value of $8,300,000, assessed value of $2,656,000.Transcript was received by the Hearing Officer on April 7, 2008.
The Hearing Officer, having considered all of the competent evidence upon the whole record, enters the following Decision and Order.
Complainant offered into evidence:
Exhibit A: a Self-Contained Appraisal Report by Gerald R. Maier, MAI, Missouri State Certified General Real Estate Appraiser; and
Exhibit B: Written direct testimony of Mr. Maier.
Both exhibits were received into evidence.
Testimony of Gerald R. Maier.
Respondent tendered as evidence:
Exhibit 1: A Summary Appraisal Report by Jeffrey L. Valle, Commercial Department Appraiser;
Exhibit 2: Written direct testimony of Mr. Valle;
Exhibit 3: Market Value Appraisal Report by Mr. Maier for Lowe’s inOlathe,Kansaswith an effective date of January 1, 2002, January 1, 2003, and January 1, 2004;
Exhibit 4: Complete Appraisal Self-Contained Report by Mr. Maier for Lowe’s inOsage Beach,Missouriwith an effective date of January 1, 2006.Valuation $9,150,000; and
Exhibit 5: Complete Appraisal Self-Contained Report by Mr. Maier for Lowe’s inJefferson City,Missouriwith an effective date of January 1, 2006.Valuation $8,900,000.
Exhibits were received into evidence.
Testimony of Jeffrey L. Valle.
FINDINGS OF FACT
1.Jurisdiction over this appeal is proper.Complainant timely appealed to the State Tax Commission from the decision of the Jefferson County Board of Equalization.
2.The subject property is located at 1111 Bradley,Festus,Missouri.The property is identified by parcel identification number 18-1.0-12.0-007-001.The property consists of 16.15 acres, improved by a single-tenant (owner) retail warehouse structure containing 135,152 ( Ex. A page 7) to 135,579 (Ex. 1 p.6) square feet of gross building size and net rentable area.The site also includes a 4200 square foot canopy, 18,398 square foot of covered outdoor storage, a 9,370 square foot fenced yard, and other amenities such as signage, parking, lighting, sidewalks and docks.The land was purchased in 2003. (Ex. A p.8) The improvements were constructed in 2004. (Ex.1 pp. 89) It has been utilized as a Lowe’s home improvement store and warehouse since its construction.
3.There was no evidence of new construction and improvement from January 1, 2005, to January 1, 2006.
CONCLUSIONS OF LAW AND DECISION
The Commission has jurisdiction to hear this appeal and correct any assessment which is shown to be unlawful, unfair, arbitrary or capricious.Article X, section 14, Mo. Const. of 1945; Sections 138.430, 138.431, RSMo.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.Section 138.431.4, RSMo.
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.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, supra.
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 is 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 each 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.
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.
Assessment of real property in Missouriis under a two year assessment cycle.The assessor is to value property as of January 1, of the odd-numbered year.The assessed value established for the odd-numbered year, remains the value for the following even-numbered year in the absence of new construction and improvement to the property.Section 137.115.1, RSMo; 12 CSR 30-3.001(1).
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.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).
Missouricourts have approved the comparable sales or market approach, the cost approach and the income approach as recognized methods of arriving at fair market value. 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).
The cost approach is most appropriate when the property being valued has been recently improved with structures that conform to the highest and best use of the property or when the property has unique or specialized improvements for which there are no comparables in the market. Stephen and Stephen Properties, Inc. v. State Tax Commission, 499 S.W.2d 798 (Mo.1973). Snider v. Casino Aztar/Aztar Missouri Gaming Corp., 156 S.W.3d 341 (Mo. 2005).While reproduction cost is the best indicator of value for newer properties where the actual costs of construction are available, replacement cost may be more appropriate for older properties.
The “income approach” determines value by estimating the present worth of what an owner will likely receive in the future as income from the property. The income approach is “based on an evaluation of what a willing buyer would pay to realize the income stream that could be obtained from the property when devoted to its highest and best use….” Equitable Life Assurance Society v. State Tax Commission, 852 S.W.2d 376, 380 (Mo.App.1993). This approach is most appropriate in valuing investment-type properties and is reliable when rental income, operating expenses and capitalization rates can reasonably be estimated from existing market conditions.
The “comparable sales approach” uses prices paid for similar properties in arms-length transactions and adjusts those prices to account for differences between the properties. “Comparable sales consist of evidence of sales reasonably related in time and distance and involve land comparable in character.” See State ex rel. Missouri Highway and Transportation Commission v. Union Realty and Securities Co., 827 S.W.2d 768, 770 (Mo.App.1992). This approach is most appropriate when there is an active market for the type of property at issue such that sufficient data are available to make a comparative analysis.
The commission’s choice of valuation approaches must comply with the law. Both section 137.115 and article X, section 4(b) of the Missouri Constitution require that real property in Missouri be taxed according to its true value in money. True value is a function of the property’s highest and best use. Aspenhof Corp., 789 S.W.2d at 869.Highest best use is as a single-tenant retail warehouse (Ex. A 43-44)
Presumptions In Appeals
There is a presumption of validity, good faith and correctness of assessment by the CountyBoardof Equalization.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).
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 assessor’s and/or Board’s valuation is erroneous and what the fair market value should have been placed on the property.Snider, Hermel, & Cupples-Hesse Corporation v. State Tax Commission, 329 S.W.2d 696, 702 (Mo. 1959)Cupples Hesse, supra.
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, 2005.Hermel, Inc. v. State Tax Commission, 564 S.W.2d 888, at 897.Substantial evidence can be defined as such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.See, Cupples-Hesse Corporation.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.Brooks v. General Motors Assembly Division, 527 S.W.2d 50, 53 (Mo. App. 1975).See also, 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).
Complainant’s evidence did not meet the necessary standard of substantial and persuasive on the issue of fair market value of the subject property.
The Complainant’s appraiser developed the Cost, Sales Comparison and Income Approaches to value.He gave moderate consideration to the Cost Approach.His Reconciliation and Final Value Estimate gave greater weight to the Sales Comparison Approach, as supported by the Income Approach.(Ex A p123)
As the Complainant’s appraiser states in his report, the cost approach is based upon the proposition that the informed purchaser would pay no more than the cost of producing a substitute property with the same utility as the subject property.The Cost Approach is particularly applicable when the property being appraised involves relatively new improvements, which represent the highest and best use of the land or when relatively unique or specialized improvements are located on the site and for which there exists no comparable properties in the marketplace.(Ex.A p 45)
The appraiser developed the four steps of the cost approach: (1) estimate of the market value of the subject site; (2) estimate of the cost of replacing or reproducing the existing improvements under current market conditions; (3) estimate of the depreciation from all causes; and (4) subtracted the total depreciation from the cost of the improvements. The depreciated value of the improvements was then added to the market value of the site.
Estimating the Value of the Subject Site
The appraiser used four land sales for comparison to determine a market value for the site.The appraiser listed in his report that the sales occurring from September 2004 to May 2007.The comparable properties ranged in size from 2.33 acres to 46 acres.
The appraiser states in his report that Land Sale 1 is a 14 acre site which sold in September, 2004 for $1,829,520. (Ex.A p.47)On cross examination, the appraiser was asked if he had the correct measurement of the property and whether the property had sold since September 2004.The appraiser testified that he believed his information was correct and that he was not aware of any sale of the property.The appraiser conceded that a subsequent sale of the property prior to the effective date of the appraisal would be relevant.(Tr.30)The property sold in March, 2005 and the property is 5.5 acres, not 14 acres.(Ex 1 p. 108).
The appraiser’s Land Sale 2 is a tract of 2.33 acres that sold for $948,112.The appraiser stated that Land Sale 2 is a Cracker Barrel located on Veteran’s Boulevard,Festus,Missouri.There is no Cracker Barrel on Veteran’s Boulevard and no Cracker Barrel inFestus,Missouri.(Tr. 18)
The appraiser’s Land Sales 3 and 4 were not sales but listings and the Grantor and Grantees are undisclosed.
The appraiser made adjustments to the comparables for time/market conditions, size, physical condition, and location.According to the appraiser, general market pairings typically support a size adjustment of 5 -10% per doubling/halving in size. (Ex A p. 51) Land sale 4 is 46 acres and the appraiser only adjusted the listing price 15%.(Ex. A p. 53)Land Sale 2 is 2.3 acres and the appraiser only adjusted the price 25%.(Ex. A p. 53)
The gross adjustments ranged from 28% to 55%.(Ex. A p.53) He determined the market range per square foot to be $3.44 to $7.22 with an average of $5.09.Using a rate per square foot of $5.00, the appraiser estimated a value of the land of $3,520,000 on January 1, 2006. (Ex. A p. 53)
The subject property was purchased in 2003 for $3,600,000.A portion of the property was sold for $634,000.The property owners then spent $200,000 on demolition and preparation of the remaining 16.15 acre site.
Estimation of the Replacement Cost New
The appraiser, using Marshall Valuation Service, determined that the replacement cost new was $8,615,234.(Ex. A p. 55)The actual cost to build the property in 2004 was $9,000,000.(Tr. 28)
Estimation of the Depreciation
The next step in the cost approach is to determine the depreciation.In his calculation, the appraiser used an 8.5% vacancy rate when he reported that the area has 100% occupancy rate.(Ex. A p. 57) (Ex. A p. 42)He estimated expenses of 23.97% of effective gross income but testified that the leases of this type are usually triple net meaning that the tenant would be paying the taxes, insurance, and maintenance. (Tr. 40)
Subtract total depreciation from the cost of the improvements and Final Value
After the appraiser estimated depreciation $3,060,000, he deducted the depreciation from the replacement cost new of $8,615,234, and then added that to the land value of $3,520,000, for a resulting value rounded to $8,270,000.
The appraiser’s land sales, vacancy rate, depreciation, and expenses are all questionable.The subject property was purchased in 2003 for $3.6 million.A portion of the property was sold for $634,000.The property owners then spent $200,000 on demolition and preparation of the 16.15 acre site.The actual cost to build the improvement in 2004 was $9,000,000.(Tr. 28)Given that the valuation date for this case is January 1, 2005 and that there was no evidence for excessive improvements, the true costs to construct the building would seem to provide a better indication of market value than using the figures by the Complainant’s appraiser.
Sales Comparison Approach
The appraiser located sales of fee simple and lease fee estates.He divided the sales into six different groups for purposes of analysis.These groupings were: (1) Build-to-Suit Sale/Leasebacks; (2) Build-to-Suit Sales; (3) Later Term Leased Fee Sales; (4) Second Generation Leased Fee Sales; (5) Partial Leased Fee Sales; and (6) Fee Simple Sales.The appraiser provided sales comparison approach on fee simple sales (6) and later term second generation lease fee sales (3 & 4).
Fee Simple versus Leased Fee
The property under appeal is owner-occupied.It is not the subject of a long term lease.
The appraiser included the following Assumption and Limiting Condition:
“As of the effective appraisal date, the subject property was 100% owner-occupied by Lowe’s.This analysis will conclude the market value for the subject property in fee simple estate.This market value conclusion specifically assumes that Lowe’s is not currently in occupancy but is in the market of potential users of the property.”Exhibit A.
The appraiser states that in order to establish an indication of market value for the subject property, a process takes place allowing the appraiser to analyze the data gathered and form this data into an indication of market value for the property being appraised.This analysis follows a sequence whereby: (1) the appraiser finds properties similar to the subject for which sales, listings, rentals and offerings are available, (2) sales are qualified by the appraiser when they confirm price, terms, motivation or authenticity of the sales; (3) each sales is compared to the subject giving consideration to the time, location, and physical characteristics; (4) each sale is then evaluated and adjusted as being more, less, or equal in value to the subject property; (5) after comparing the sales to the subject and making adjustments, each comparable sale will then indicate a probable selling price for the subject property.The probable selling price indicated by all comparable sales are then correlated into a final value estimate.(Ex. A P 59)
Fee Simple Sales Comparison
The appraiser compared nine fee simple sales or transactions involving properties that were vacant at the time of their sale.(Ex. A P. 63) The appraiser could not find sales of fee simple interests of relatively new big box structures in the local market and therefore all the sales are properties at least 11 years of age.(Ex. A p. 59)
ImprovedSale#1 is a 14.75 acre site with a 15 year old improvement of 137,649 square feet located inKansas City,Missouri. (Ex. A p.65)The property sold on March 1, 2000 for $3,200,000. (Ex. A p.65)The appraiser made 63% gross adjustments for comparison purposes. At the hearing, the appraiser acknowledged that the transaction was part of a bankruptcy action (Tr. 45).The appraiser also testified that the property was sold in April 2007 for $16,400,000 (Tr. 46)
ImprovedSale#2 was a sale of 11 acres with a 15 year old improvement of 85,820 square feet which occurred in December 2000 inFairview Heights,Illinois.The transaction was actually a foreclosure.(Ex. A Addendum B)The gross adjustments totaled 40%, however, no adjustment was made for size even though the comparable property is 50,000 square feet smaller than the subject property. (Tr.51-52)
ImprovedSale#3 occurred in June 2002 of a 13 year old improvement of 110,000 square feet on 10.5 acres inBridgeton,Missouri. (Ex. A p. 77) Once again, the property was actually subject to bankruptcy. (Tr. 53)The property was vacant for three to five years before the transaction occurred. (Tr 54)
ImprovedSale#4 was a sale that occurred in January 2003 of an 11 year old, 110,000 square foot improvement on 8.67 acres inLewisville,Texas.
ImprovedSale#5 was a sale occurring in June 2003 of a 20 year old improvement of 104,000 square feet on 12.57 acres inCarrollton,Texas.On cross examination the appraiser testified that the property was not on the market at the time of the sale.The purchaser, the city, approached the owner and the property was purchased for demolition. (Tr. 60-61)
ImprovedSale#6 was a sale of an 18 year old, 106,000 square foot improvement on 11.48 acres.The property was vacant for several years as the access to the highway had been closed.(Tr. 61) The property was sold to a religious organization.
ImprovedSale#7 was a sale of a 24 year old, 84,613 square foot building on 10 acres.The appraiser made 77% gross adjustments.
ImprovedSale#8 was a 14 year old building of 130,000 square feet on 10 acres.The property is vacant.The grantor was Wal-Mart.The appraiser testified on cross-examination thatWal-Mart typically includes restrictions on use of the property.(Tr. 63)
The last comparable, ImprovedSale#9, is a 20 year old, 84,000 square foot building, on 8.25 acres that sold in 2006.The property was vacant for three years and the transaction was a foreclosure.
The properties were adjusted for age and condition, location, and construction quality.All the comparable properties were deemed inferior in age and condition to the subject property and all but one were deemed inferior in construction quality. The appraiser included in a chart in his appraisal representing the analysis for his adjustments for location. (Ex. A p. 75)In the chart for the fee simple sales, the subject’s five year projected increase in population percentage is 3.87%.The same type of analysis is made by the appraiser for leased fee properties. (Ex. A p88) However, in the chart for lease fee properties, the subject’s five year projected increase in population percentage is 7.89%.The appraiser could not account for the difference.(Tr.58)
According to his chart for location analysis, Improved Sale 9 has twice as many people living within one mile as there are to the subject property with income levels 50 percent higher.The appraiser deemed the subject property and Improved Sale 9 location as “comparable” . (Ex A 75, 77) According to his chart for location analysis, Improved Sale 7 has three times as many people living within five miles as there are to the subject property with income levels 50 percent higher, yet the appraiser has determined that the comparable is inferior as to demographics.(Ex A 75, 77)
The total gross adjustments ranged from 31-80%, however, the appraiser made no adjustment for size. The properties ranged in size from 84,146 square feet to 137,649 square feet.The subject property is approximately 135,500 square feet.
The appraiser estimated a market range per gross building square feet of $24.62 to $55.77 with a mean of $43.23.(Ex A p. 77)Although the appraiser went through the analysis, the appraiser determined that the rate per gross building square feet to be used under this analysis is a rate of $61.50 (Ex A p.77 Tr 66)
The fee simple sales or transactions were not persuasive to establish market value.The comparable properties are older than the subject.Gross adjustments ranged up to 77%.The sales did not meet the criteria of sales used to determine market value in that they were dated sales, foreclosures, bankruptcy, subject to restricted uses, or properties that were not on the market at the time of the sale.The poor quality of properties selected and analysis is exampled by sale one that sold in April 2007 for $16,400,000 but the appraiser used the sale of that same property that occurred in 2000 for $3,200,000 from a bankruptcy proceeding.
Leased Fee Sales Comparison
The appraiser also did an analysis of Late Term and Second Generation Leased Fee Sales.A total of nine properties were compared to the subject property.
Sale#1 is a 25 year old, 79,140 square foot improvement on a 11.19 acre site.(Ex. A p 79).The appraiser knew the comparable was aValueCityafter the sale in August, 2001.The appraiser knew that the property is now a convention center. (Tr. 67)When asked on cross examination why he did not review any sales of the property after August, 2001, the appraiser stated “I wish I had. Especially if it actually did sell again.” (Tr. 68)
Sale#2 occurred in February, 2003.The improvement was 16 years old and 81, 000 square feet on an 8 acre site.
Sale#3 was an improvement of 81,000 square feet built in 1989 on a 9 acre site.ValueCitypurchased the Grandpa’s retail trade and this improvement and site was part of the transaction. Appraiser testified that he did not know the details of the sale and did not know if it was loan assumption, assignment, bankruptcy or foreclosure.(Tr. 69)
Sale# 4 was a 126,852 square foot improvement built in 2004 on an 11.46 acre site.The sale was actually a sale leaseback.The appraiser testified that he did not review the deed and did not know the terms of the agreement.(Tr. 68-69)
Sale#5 was a 97,227 square foot improvement built in 1973 with improvements in 1991 on a 9.76 acre site.The appraiser estimated a sales price of $4,000,000 for a sale occurring in 2005.The appraiser testified that the sale was confidential and he did not confirm that the sale closed.(Tr. 70)
Sale#6was a 138,669 improvement built in 1992 on a 11.52 acre site.The sale was a fee simple sale rather than lease fee sale occurring in 2005.The appraiser testified that he should not have included the sale in this analysis. (Tr. 73 )
Sale#7 was a 122,000 improvement built in 1997 on a 10.97 acre site.(Ex. A p. 85)The sale occurred in June, 2006 and the property sold for $7,800,000.
Sale#8 was a 113,033 square foot improvement built in 1982 on an 8.88 acre site. The confidential sale occurred in February 2007 and the appraiser stated the property sold for $3,500,000. (Ex. A, p.87)
Sale#9 was a 141,284 square foot improvement built in 1995 on an 11.79 acre site.The sale occurred in February 2007 and the property sold for $9,325,000. (Ex.A, p. 87)
In comparing the properties, the appraiser made adjustments for time, age/condition, location, size and quality.The gross adjustments ranged from 20 – 70%.
All the properties except one were deemed inferior due to age and condition.Sale# 4 was deemed superior.Appraiser listedSale# 4 as being new in 2004 and made an 18% downward adjustment.The downward adjustment is inappropriate as the subject property was also built in 2004 and not in 2000 as set forth by the appraiser.(Ex.A p. 90).
The appraiser did adjust for building size in this comparison which he did not do in the comparisons of fee simple sales.The improvements under 100,000 square feet were deemed superior to the subject property and adjusted downward 5%.
The appraiser made adjustments for location.His analysis for his adjustments is included in a chart in his appraisal. (Ex.A. p.88)In the chart for the leased fee sales, the subject’s five year projected increase in population percentage is 7.89%.The same type of analysis is made by the appraiser when he looks at sales for fee simple fee properties. However, in the chart for fee simple sales, the subject’s five year projected increase in population percentage is 3.87%.The appraiser could not account for the difference.(Tr.58)
The appraiser determined the market range per gross building square feet was $47.16-$71.29 with an average of $61.13 rounded up to $61.50 making a total valuation of $8,310,000.
Once again, the selection of properties and the analysis of the properties selected is not persuasive evidence of value.The problems with the analysis include properties selected were old improvements, the appraiser did not know the terms of the sale, the appraiser included “sales” which should not have been included, some of the sales selected were foreclosures, and the appraiser estimated the sales price rather than using actual sales price.The appraiser also made gross adjustments up to 70%.The appraiser, in the comparison grid, lists the built date of the subject property as 2000; the property was built in 2004.Using the incorrect completion date affects the adjustments for age for exampleSale4 was new in 2004 – same as subject – but the appraiser adjusted it downward 18% for age.
The appraiser gave significant consideration to the Income Approach as support for his sales comparison approach.
The appraiser categorized leases into three groups: (1) first-generation leased space designed for the user; (2) second-generation tenants in big box structures renovated for the subsequent user; and (3) second-generation leases for big boxes taken on an as is basis.The appraiser believes that category (3) leases were most indicative of the market rent for the subject property.(Ex A p.94)
The appraiser selected seven properties to analyze in his Comparable Rentals Adjustment Grid.For these properties, the appraiser, where required, made adjustments for Time/Market Conditions, Building/Suite Size, Age/Condition, Location and Construction Quality.The building sizes were all superior to the subject and all the comparables were inferior to the subject as to the age and condition.(Ex. A p.103.)Appraiser testified that he did not review the leases but deemed them to be comparable. (Tr. 74)His comparison chart has percentage adjustments.The percentage adjustments were not explained in his report or in his testimony.
The adjusted market range per net rentable square foot (NRSF) was from $4.12 to $7.95, with the mean being $6.35.The appraiser used a $7.00 per NRSF for his income analysis. (Ex. A p. 103. )
The appraiser then looked at expenses. (Tr. 75, Ex. A p.106.)According to the appraiser, expenses of the properties are “kept pretty close to the vest.”The properties used to determine a market rent were not disclosed. The ages of the buildings were disclosed.Out of the list of twenty five improvements, none were built in 2000s.Some of the improvements were built in the 60s.The newest improvement was built in 1990.The properties ranged in size from 8,880 square feet to 196,906 square feet. (Ex. A p. 106)
To calculate an overall rate, the appraiser looked at 20 buildings.Of the 20 buildings, only four were built in 2000s, one was built in 2003.The improvement completed in 2003 is 143,350 square foot building located inKansas City,Missouriwith an overall rate of 8.1%.The appraiser used a 9.5 percent cap rate.(Ex. A p. 110)
Conclusion of Complainant’s Approaches
Complainant must present substantial and persuasive evidence that the proposed value is indicative of the market value of the subject property on January 1, 2005.The evidence presented and used as the basis of the expert’s opinion was so deficient and defective that it did not have sufficient weight or probative value.
Opinion Testimony by Experts
If specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue, a witness qualified as an expert on that subject, by knowledge, skill, experience, training, or education, may testify thereto.
“The facts upon which an expert’s opinion is based, like the facts sufficient to support a verdict, must measure up to the legal requirements of substantiality and probative force; the question of whether such opinion is based on and supported by sufficient facts or evidence to sustain the same is a question of law for the court.”Robinson v. Empiregas Inc. of Hartville, 906 S.W.2d 829 (Mo. App. S.D. 1995).
An expert’s opinion must be founded upon substantial information, not mere conjecture or speculation, and there must be a rational basis for the opinion.Missouri Pipeline Co. v. Wilmes, 898 S.W. 2d 682, 687 (Mo. App. E.D. 1995). The facts upon which an expert’s opinion is based, like the facts sufficient to support a verdict, must measure up to the legal requirements of substantiality and probative force; the question of whether such opinion is based on and supported by sufficient facts or evidence to sustain the same is a question of law for the court.Robinson v. Empiregas Inc. of Hartville, 906 S.W.2d 829 (S.D. 1995).
The opinion of the expert was not based on or supported by sufficient facts or evidence.Further, upon cross-examination, the Complainant’s appraiser admitted that he was denied an appraiser’s license in the State of Arizona on May 20, 2004 based on his conduct in another state by failing to comply with the Uniform Standards of Professional Appraisal Practice in the preparation of one or more appraisal reports andpreparation of one or more appraisal reports without proper appraiser certification.(Tr. 10)In January 1997, the appraiser entered into an agreement with Kansas Real Estate Appraisal Board admitting to violations of the USPAP and Kansas Statutes annotated 58-4121 including 13 limitations and deficiencies and that his highest and best use conclusion for the office portion of the subject property of an appraisal was misleading in that he failed to clearly identify the difference between development of speculative office buildings for lease, and the potential for development of the site as an office park available to suit users. (Tr. 11-12)
The assessed valuation for the subject property as determined by the Assessor and sustained by the Board of Equalization forJeffersonCountyfor the subject tax day is AFFIRMED.
The assessed value for the subject property for tax year 2006 is set at $4,164,000.
A party may file with the Commission an application for review of this decision within thirty (30) days of the mailing of such decision.The application shall contain specific 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.Section 138.432, RSMo 2000.
If an application for review of this 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 and an order to the Collector to release and disburse the impounded taxes.§139.031.3 RSMo.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 Jefferson 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 or all 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 June 6, 2008.
STATE TAX COMMISSION OFMISSOURI