Peruque LLC v. Shipman (St. Charles)

State Tax Commission of Missouri

 

PERUQUE LLC,)

)

Complainant,)

)

v.                                                                            )Appeal Nos.07-32728 thru 07-32895

)

SCOTT SHIPMAN, ASSESSOR,)

ST. CHARLES COUNTY, MISSOURI,)

)

Respondent.)

 

DECISION AND ORDER

 

HOLDING

 

Decision of the St. Charles County Board of Equalization sustaining the assessments made by the Assessor AFFIRMED in Appeals 07-32728-29, 07-32748-49, 07-32768, 07-32778, 07-32784-85, 07-32832-34, 07-32839-44, 07-32860-72, and 07-32878-95.

Decision of the St. Charles County Board of Equalization sustaining the assessments made by the Assessor SET ASIDE in remaining Appeals.

ISSUE

The Commission takes these appeals to determine the true value in money for the subject properties on January 1, 2007.

SUMMARY

Complainant appeals, on the ground of overvaluation, the decision of the St. Charles County Board of Equalization, which sustained the valuation of the subject properties.

The Assessor determined appraised value of $44,000 per parcel for 105 parcels or lots in the Carlton Glen Estates, assessed value of $8,360, as residential property.The Assessor determined appraised value of $55,000 per parcel or lot for 63 lots in the Carlton Glen Estates, assessed value of $10,450.In their Complaint for Review of Assessment, Complainant proposed values of $7,000 per parcel or lot for 105 lots, assessed value of $1,330; and $35,000 per parcel or lot for 63 lots, assessed values of $6,650.

A hearing was conducted on January 14, 2009, at the St. Charles County Administration Building, St. Charles, Missouri. Complainant appeared by Counsel Jim Bick, St. Louis, Missouri.Respondent appeared by Counsel, Chris Mayes.Case heard and decided by Hearing Officer Maureen Monaghan.

Transcript of hearing was received by the Commission on February 6, 2009.Complainant filed a brief on April 15, 2009.Respondent filed his brief on May 29, 2009.Complainant replied on June 23, 2009.

The Hearing Officer, having considered all of the competent evidence upon the whole record, entered a Decision and Order on June 25, 2009.

The Complainant appealed the decision and on October 11, 2011, the Missouri Court of Appeals remanded the case to the State Tax Commission for rehearing.The Court ruled that “The STC erred in valuing the partially developed property as individual lots although they were unimproved and contiguous, and in failing to consider all the evidence presented to it as part of the comparable sales approach.”

The parties submitted additional evidence in compliance with the order of the Appellate Court and a hearing was held on July 9, 2012, as to the parcels that were partially developed, unimproved and contiguous.Parties stipulated that there was a total of 31.43 acres in two contiguous areas of 24.7 acres and 6.73 acres.

Parcels

6.73 Acres (26 Lots platted) of Partially Developed, Unimproved and Contiguous Property

 

24.7 Acres (94 lots platted) of Partially Developed, Unimproved and Contiguous Property

 

48 Lots of Developed Property

 

Complainant’s Evidence

Complainant offered the following exhibits on January 14, 2009:

 

Complainant offered the following exhibits on July 9, 2012:

 

Complainant’s Rebuttal Exhibits

 

Respondent stated that Exhibits I –Q were rebuttal exhibits and should not be considered in Complainant’s case in chief.Exhibits I-Q were presented as rebuttal evidence and admitted.

Respondent’s Evidence

Respondent offered the following exhibits on January 14, 2009:

 

Complainant filed objections on Exhibits 1A and 1B.The objections were overruled.

Respondent offered the following exhibits on July 9, 2012:

 

Complainant objected to Exhibits R2 and R3 arguing that the appraisal was not in compliance with the Court of Appeals decision.Objection was overruled.Complainant objected to some of the questions in the written direct testimony. (Exhibit R4)Rulings on the objections were addressed in an Order issued July 6, 2012 and are incorporated by reference. Complainant objected to Exhibit R22 for improper foundation as the witness testified that the exhibit came from the first hearing as Exhibit A.Exhibit A is the appraisal of Mr. Westover and therefore R22 was not Exhibit A from the first hearing.The objection was sustained.

Respondent’s Rebuttal Exhibits

 

Respondent did not present any rebuttal evidence and therefore Exhibits R5-R11 were not offered as evidence.The Hearing Officer will admit R6 and R7, R8, R9 as corrections to the appraiser’s report (Exhibits R2 and R3) as the appraiser and the Complainant’s counsel referenced the documents during the hearing.

FINDINGS OF FACT

1.Jurisdiction over these appeals is proper.Complainant timely appealed to the State Tax Commission from the decision of the St. Charles County Board of Equalization.

2.The subject properties are one hundred and sixty-eight (168), vacant, single-family residential, lots located in the 504 lot Carlton Glen Estates subdivision in Wentzville, Missouri.

3.A real property subdivision plat was filed with the County in 2003.The subject properties are in varying stages of development.

4.Subject properties in Appeal Numbers 07-32728-29, 07-32748-49, 07-32768, 07-32778, 07-32784 thru 07-32785, 07-32796 thru 07-32797, 07-32832 thru 07-32834, 07-32839 thru 07-32844, 07-32861 thru 07-32871, 07-32878 thru 07-32895 (hereinafter referred to as “fully developed”) have utilities and paved roads.

6.The entire development had been engineered, “blasted”, rough graded, and water mains, sewers and utilities are accessible.

7.The forty-eight (48) fully developed properties have a market value of $55,000 as of January 1, 2007.

8.The 6.73 acres has a market value of $508,552 as of January 1, 2007.

9.The 24.7 acres has a market value of $1,836,445 as of January 1, 2007.

CONCLUSIONS OF LAW AND DECISION

Jurisdiction

The Commission has jurisdiction to hear these appeals 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.[1]

Presumption In Appeals

There is a presumption of validity, good faith and correctness of assessment by the CountyBoardof Equalization.[2]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.[3]

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.[4]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.”[5]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.[6]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.[7]

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.[8]It is the fair market value of the subject property on the valuation date.[9]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.[10]

 

Subject Properties

 

The subject properties in these appeals are single-family residential lots located in the Carlton Glen Estates subdivision in the City of Wentzville, County of St. Charles, Missouri.The plat of the subdivision was filed with the County in 2003.The Carlton Glen Estates is a planned residential development of 504 lots.The properties subject to this appeal are 168 of those lots.The entire subdivision has been engineered, rock has been blasted for utility installation, the lots have been rough graded, streets have been laid out and in some areas have been paved, sewer and water mains have been added and electric and other utilities have been run in areas.

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.[11]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.[12]

The issue before the State Tax Commission is the valuation of vacant land.An appraiser begins the valuation of a parcel of land by identifying the real estate and property rights to be valued, any encumbrances on those property rights, the land’s physical characteristics, and the available utilities and site improvements.There are several appraisal methods for valuation of land.The sales comparison approach is usually the preferred methodology for developing a land value conclusion.[13]The procedure involves collecting, analyzing, comparing data on sales of similar parcels.If necessary, the appraiser may need to adjust the sale prices to reflect the differences of the comparable properties to the subject property.The adjustments must be developed using market data to support.

Valuation of 48 Fully Developed Lots

 

The Complainant’s appraiser valued thirty-eight fully developed parcels and concluded on a value of $50,000 per lot.The appraiser used two approaches to determine true value of the property: “bulk sale takedown” and a discounted cash flow.The appraiser relied most heavily on his bulk sale approach to conclude a value of $50,000 per lot.

The appraiser looked for “bulk sale takedowns” which the appraiser described as being sales of multiple, vacant lots to one buyer.The appraiser used four of these sales that occurred from December 2005 to December 2006 for sales of 11 to 68 lots.The lots sales ranged from $53,000 per lot to $62,000 per lot.The appraiser made adjustments for the discount based upon the number of lots sold, time of sale, market condition adjustment, and location, amenities and lot frontage.After adjustments, the range in sale prices ranged from $41,438 per lot to $61,339 per lot.The appraiser concluded on a value of $50,500 per lot.

The appraiser also developed a discounted cash flow analysis on thirty eight lots.The appraiser looked to the sale of twelve individual lots and concluded that the market would support a value of $65,000 per lot.The appraiser then calculated a discount rate, the costs per lot sale, and the projected absorption rate.The appraiser applied the rates to his per lot value of $65,000 and concluded a value of $42,000 per lot.

The State Tax Commission has treated lots in a subdivided development as individual entities and each lot’s value determined individually, most commonly by the sales comparison approach.[14]Both approaches used by the appraiser require the appraiser to make assumptions, projections and speculate.If the appraiser’s judgment is not accurate, the result is an unsupportable market value.The results of the approach can be impacted by minor leanings by the appraiser.[15]

The sales comparison approach is most reliable approach to determine land value if there are sufficient number of sales of similar property.[16]The County’s appraiser located 18 sales.Twelve of the sales occurred within the subject properties’ development.The remaining six lots used in his sales comparison were in similar developments within 4 miles of the subject properties.The sales occurred between March 2006 and December 2007.The properties were similar in size.Due to their comparability, no adjustments were made.The comparable properties sold from $49,500 to $65,000.

Sales comparison is the best approach if there are sufficient sales.The sales comparison approach requires the least amount of adjustments and assumptions by the appraiser.Both appraisers provided sales of comparable properties with sale prices ranging from $49,500 to $65,000.There are sufficient sales that occurred close in time to the valuation date and close in all other aspects of comparability such as size and location.Since there are sufficient sales to develop the sales comparison approach, it is the most persuasive and most accurate approach.The sales of similar parcels presented by both appraisers support the Boards findings of $55,000 per lot for 48 lots that are fully developed.

Valuation of Partially Developed, Unimproved and Contiguous Property

There are different methods for valuing property whose highest and best use is for the development as a residential subdivision.The methods include the sales comparison approach, cost of development, allocation and subdivision development analysis.

Subdivision Development Analysis involves deducting the direct and indirect costs and entrepreneurial profit from an estimate of the anticipated gross sales price of the finished lots, and the net sales proceeds are discounted to present value at a market-derived rate over the development and absorption period.The costs and profit data should be obtained from the developer as well as obtained from the market. This approach requires significant amounts of data on development sales and costs for the developed lots.When used without an abundance of reliable market data, it can be the least accurate raw land valuation technique. Caution should be used with this approach especially for litigation purposes as states often do not recognize this as a valid valuation technique.Missouri has not accepted this methodology.The IAAO publication Property Appraisal and Assessment Administration notes that the method involves considerable speculation and should be used cautiously.The publication also states that once parcels are subdivided, each parcel becomes an individual entity and its value should reflects its most probably sales price.

Complainant’s Valuation

The Complainant’s appraiser completed a comparable sales approach for the 31.43 acres of property.The appraiser used 6 sales of involving several acres of land occurring from March 2005 to January 2006.The sales involved properties ranging in size from 11.596 to 65.82 acres.The prices ranged from $708,860 to $5,110,000 or $40,000 to $77,636 per acre.The appraiser’s only adjustment to the sales was for time for the properties selling in 2005.Complainant’s appraiser testified that although he believed the Court of Appeals directed the parties to consider the land undeveloped, he did consider the engineering, platting, clearing and grading.The comparable sales he used had all of these items.Appraiser did not take into consideration the completed streets and improvements for the subject such as swimming pool, club house, entrance improvement and other amenities as he testified those items do not add market value to the remaining lots. Appraiser did not make adjustments for improvements found on comparable properties as he testified that the removal of buildings would be de minimis costs for the development.His conclusion of value was based upon sales comparables 4 and 6 which were most similar to the subject as to density (the number of lots per acre).

The appraiser stated that the comparable properties were in similar condition as to engineering, grading and clearing. After adjustments, the price per acre ranged from $43,660 to $82,294.The appraiser concluded on a $74,600[17] per acre valuation or $2,345,000 for the entire 31.43 acres.The appraiser allocated the valuation as $1,836,445 for the 24.70 acre property and $508,552 for 6.73 acres.

As part of Complainant’s rebuttal evidence, the appraiser approached the valuation of the 31.43 acres as the property existed on January 1, 2007.In other words, he valued the property as it stood having been cleared and rough graded. The appraiser then determined, through information from the developer, that the cost to install streets, sewers, utilities, etc for 120 lots was approximately $12,555 per lot or $47,934 per acre.The appraiser then relied on his bulk sales analysis in Exhibit A, from the first hearing, to determine market value for 120 lots within the 31.43 acres.The appraiser determined lot values of $36,250 and $48,000 depending on the location of the lot or a value for the 31.43 acres of $4,890,500 or $155,599 per acre.The appraiser then deducted the cost to develop ($47,934) and a 25% profit margin ($31,080) resulting in a valuation of $76,550 per acre.The appraiser allocated the market value of $2,406,000 (31.43 acres x $76,500) as $1,792,000 for the 24.70 acres and $614,000 for the 6.73 acres.

The weakness in this approach is that the appraiser provided no information regarding the sales used or how the adjustments were determined.The appraiser then deducted a 25% profit margin – again without noting how this amount was determined.He then deducted the cost to complete the development with little information how this was calculated or what market data indicated.

Respondent’s Valuation

The Respondent’s appraiser developed a cost and a sales comparable approach.The cost approach took the actual purchase price of the 31.43 acres and the other 157.03 acres and added in all the development costs to date.The total costs ($20,375,425) were then divided by the total number of acres (188.46 acres) for a price per acre of $108,115.38.The appraiser used the price per acre to determine a market value for the 6.73 acre area and 24.70 acre area.The appraiser’s reconciliation of approaches and conclusion of value states that after consideration of the approaches, the sales comparison approach best recognizes the actions between buyers and sellers.

Respondent’s Sales Comparison Approach for the 6.43 acres

The Respondent’s appraiser developed two sales comparison approaches.One approach analyzed multi-lot sales and the other approach analyzed sales of acres of property.For the 6.43 acre area (26 platted lots), as to the multi-lot sales, the appraiser located sales of involving 23-32 lots, sale price ranged from $1,265,000 to $2,192,000 ($51,500 to $68,500 per lot or $165,926 to $204,681 per acre)The Sale #3 and #5 involves single and condo lots.The appraiser compared the sales and made adjustments for differences including the lack of utilities on the subject parcels.The appraiser concluded on a value per acre of $171,500 per acre or a total value of $1,154,200.

The Respondent’s appraiser also developed a sales comparison approach looking three sales of property from 25.59 to 67.27 acres with sales prices of $56,800 to$73,191 per acre. TheThe average before adjustments was $63,645.The appraiser made adjustments for utilities and buildings on the property at the time of the sale.The appraiser also adjusted for size of the properties of $50,000 per acre appraiser. The appraiser found an average adjusted price per acre of $125,223 and concluded on a per acre value of $120,000 per acre or $807,600.

The sales comparison approach using sales of acreage rather than multi-lot sales in more in compliance with the Court of Appeals directive to consider the property as partially developed, unimproved and contiguous.The weakness in both of the appraiser’s sales comparison approaches is that there little to no explanation or market data of how adjustments were calculated.Adjustments should be documented by the appraiser and should be set forth for the hearing officer to understand the adjustments made.

Further on cross-examination, it was shown that one sale was for a church property and therefore not comparable as to properties purchased for residential development and that while the County’s appraiser made an adjustment for lack of utilities on the comparables; the comparable properties and testified that they did have access to utilities.

Sales Comparison Approach for the 24.7 acres (94 lots)

Once again, the Respondent’s appraiser developed two sales comparison approaches.One approach analyzed multi-lot sales and the other approach analyzed sales of acres of property.As to the multi-lot sales, the appraiser located sales of involving 86-132 lots, sale price ranged from $3,419,680 to $5,140,200($38,941 to $50,700 per lot or $167,585to $276,436 per acre)The Sale #1, #2, #3, and #4 involves single and condo lots.The appraiser compared the sales and made adjustments for differences including the lack of full utilities on the subject parcels.The appraiser concluded on a value per acre of $115,000 per acre or a total value of $2,840,500.

The Respondent’s appraiser also developed a sales comparison approach looking three sales of property from 25.59 to 38.64 acres with sales prices of $1,453,500 ($56,800 per acre)to $3,073,268 ($87,259 per acre)One sale was for a church property and therefore not comparable as to properties purchased for residential development. The appraiser made an adjustment for lack of utilities on the comparables; however, the Complainant’s appraiser had experience with the properties and testified that they did have access to utilities.The appraiser concluded on a per acre value of $166,000 per acre or $4,100,200.

The appraiser reconciled all sales and concluded on a value of $135,000 per acre or $3,334,500.

The sales comparison approach using sales of acreage rather than multi-lot sales in more in compliance with the Court of Appeals directive to consider the property as partially developed, unimproved and contiguous.The weakness in both of the appraiser’s sales comparison approaches is that there little to no explanation or market data of how adjustments were calculated.Adjustments should be documented by the appraiser and should be set forth for the hearing officer to understand the adjustments made.

Conclusion

The Complainant’s appraiser is most persuasive and compliant with the Court of Appeals directive.The property should be valued as a sale of two large parcels rather than a sale of a large number of lots.

ORDER

The assessed valuation for the following subject properties as determined by the Assessor and sustained by the Board of Equalization for St. Charles County for the subject tax day are SET ASIDE.The assessed values of the properties are as follows:

 

 

The assessed valuation for the following subject properties as determined by the Assessor and sustained by the Board of Equalization for St. Charles County for the subject tax day are AFFIRMED:

 

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. [18]

The Collector of St. Charles County, 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 July 31, 2012.

STATE TAX COMMISSION OFMISSOURI

_____________________________________

Maureen Monaghan

Hearing Officer

Certificate of Service

 

I hereby certify that a copy of the foregoing has been mailed postage prepaid on this 31^stday of July, 2012, to:James Bick, 101 South Hanley Road, Suite 1280, St. Louis, MO63105, Attorney for Complainant; Joseph Smith, Assistant County Counselor, 100 North Third Street, Room 216, St. Charles, MO 63301, Attorney for Respondent; Scott Shipman, Assessor, 201 North Second, Room 247, St. Charles, MO 63301-2870; Ruth Miller, Registrar, 201 North Second Street, Room 529, St. Charles, MO 63301; Michelle McBride, Collector, 201 North Second Street, Room 134, St. Charles, MO 63301.

___________________________

Barbara Heller, Legal Coordinator

Contact Information for State Tax Commission:

Missouri State Tax Commission

301 W. High Street, Room 840

P.O. Box 146

Jefferson City, MO 65102-0146

573-751-2414

573-751-1341 Fax