Monday, March 4, 2013

Board Finds Respondent Failed to Support Property's Assessed Value with Income Appoach or Sales Comparison Analysis

Excerpts of the Board's Determination follow:

The parties agree these 2006 assessments increased more than 5% from the 2005 assessor’s assessments. Therefore, the Respondent has the burden of proving these 2006 assessments are correct.


The purchase price of a property can be the best evidence of a property‘s value. See Hubler Realty Co. v. Hendricks County Assessor, 938 N.E.2d 311, 315 (Ind. Tax Ct. 2010). The subject property (both parcels) sold for $400,000 in 2011. But nothing in the record relates that value to the relevant 2005 valuation date. Accordingly, this evidence is of no probative value. Long, 821 N.E.2d at 471.

Several years before the 2011 sale, the Petitioner listed the subject property with a realtor and was asking $399,000. This listing lasted from 2000 through most of 2006. According to Mr. Kelly, this asking price shows what the Petitioner thought the property was worth even though there was no sale. An asking price, however, is a poor indication of market value because it does not represent a completed sale. MANUAL at 10 (“Implicit in this definition [of market value] is the consummation of a sale as of a specified date and the passing of title from seller to buyer…”). Under limited circumstances, an asking price can have minimal evidentiary value. When reasonable marketing efforts are made to sell a property at a given price for a long period of time and those efforts are unsuccessful, it can be inferred that the market value-in-use is something less than the asking price. But proof that the market value-in-use of the subject property is something less than $399,000 does not prove the assessed value of $371,400 is correct.

The Respondent presented an income capitalization analysis that concluded the value of the subject property is $408,160. But this evidence is not credible for a number of reasons. Although several references to “we” may be an indication that Nexus Group is responsible, the one-page analysis contains no indication of who actually prepared it. Furthermore, there is no indication it was prepared in conformity with generally accepted appraisal principles. The calculation is based on income of $30,000. This figure was taken from the real estate listing, which in one place shows potential gross income of $30,000 and in another place states, “Income from parking is approximately $30,000 annually.” The income capitalization calculation apparently assumed this figure was net income and applied the capitalization rate to it. But the record does not support this assumption. Nothing in the record substantially supports the fundamental assumption that $30,000 is the appropriate income figure to capitalize. In addition to the income amount, the capitalization rate is problematic. Three sources were considered:

The Korpaz [sic.] Survey for the 1st Quarter of 2006 provides a dividend indicator of 7.57%. The RealtyRates.com Investor Survey for the 3rd Quarter of 2012 shows an average cap rate of 7.18% for all types of properties. In the Babson Capital Research Note June 2009, a historical review of cap rates shows rates between 5% - 7% during the period of 2006. *** For the purposes of this demonstration, we selected a rate of 6.0% given that the investment risk is far less for land investments than it is for retail investments.

Resp’t Ex. F. The net property tax rate for Nashville, 1.3465% also was loaded to get a capitalization rate of 7.35%. After reviewing all the evidence, the Respondent failed to prove that a national capitalization rate is relevant to this market area. The use of the 7.35% capitalization rate is a conclusion without adequate support in the record. For all these reasons, the Board ultimately gives no weight to this income capitalization analysis.

The Respondent claims that sales in the same area support the assessed land value at $22.00 per square foot. The Respondent presented evidence of three sales during 2004/2005 in the downtown Nashville area. Resp’t Ex. C, D. All three were sales of improved properties, not just bare land. The Respondent used the abstraction (extraction) method to determine the value of land from the sales.

According to Mr. Kelly, these three sales indicate land values ranging from $18.49 to $24.97 per square foot. He acknowledged, however, that the highest per square foot value was for a much smaller parcel. He also acknowledged that per square foot prices for smaller parcels tend to be more than for larger parcels. The lot sizes, extracted land selling prices, and land selling prices per square foot for these three comparables are as follows.

square feet                     extracted land price                        price/square foot

3,328                                   $83,100                                            $24.97
21,780                                 $426,900                                          $19.60
10,620                                 $196,400                                          $18.49

The subject property consists of two contiguous parcels, each containing 8,092 square feet. Thus, the total area for the subject property is 16,184 square feet. If this part of the Respondent’s case is to be believed, it seems to indicate the assessed land value for the subject property should be in the range of $18.49 to $19.60 and not $22.00 per square foot.

Closer examination of this sales comparison approach reveals another fault. Land values were extracted from the total selling prices by merely subtracting the assessed value of improvements. The Respondent offered no evidence that those assessed values actually are the depreciated values of those improvements. To repeat, this is a case where the Respondent has the burden to prove the disputed assessments are correct. Ind. Code § 6-1.1-15-17.2. To the extent there might be any inconsistency between the burden shifting provisions in Ind. Code § 6-1.1-15-17.2 and the presumption that a value determined from the Guidelines is presumed to be accurate, the statute controls. See MANUAL at 5. Consequently, the Board will not presume the improvements’ assessed values are correct. This point eviscerates the Respondent’s attempt to prove the value of the subject property through comparable sales.

In addition, the sales comparison approach offered by the Respondent goes entirely to the land value and ignores the value of the improvements on the subject property, even though that assessed value is small.

Finally, the Respondent attempted to make a case by proving purportedly comparable assessments. This sort of proof is specifically authorized by statute: “To accurately determine market-value-in-use, a taxpayer or an assessing official may … introduce evidence of the assessments of any relevant, comparable property. **** The determination of whether properties are comparable shall be made using generally accepted appraisal and assessment practices.” Ind. Code § 6-1.1-15-18(c).

The Respondent presented property record cards of two other parcels to demonstrate that land was assessed at $22.00 per square foot for 2006, the same as the subject parcels. All these properties are located in the same taxing district in Nashville. The subject property is located on Van Buren Street and the comparables are located a few blocks away on Old School Way. The relative locations are shown on the map identified as Respondent Exhibit G. All of the parcels have 8092 square feet of land. All of the parcels are paved and used for parking. None of these points of comparison was challenged by the Petitioner. Thus, the Respondent established that the land of the subject property and these two other parcels is comparable. See Long, 821 N.E.2d at 471. It appears that $22.00 per square foot was used for the land assessment of the subject property and these comparables. While Ind. Code § 6-1.1-15-18(c) provides authority for the admissibility of comparable assessments, the point does not establish that $22.00 per square foot corresponds to the land’s actual market value-in-use. See O’Donnell, 854 N.E.2d at 94-95; Eckerling v. Wayne Twp. Assessor, 841 N.E.2d 674, 678 (Ind. Tax Ct. 2006).

Furthermore, the Petitioner’s claim does not indicate his dispute is limited to the assessed value of the land. Although the Respondent’s case focused entirely on the land and the improvement assessed value was rather small, in order to make a prima facie case the Respondent had the burden to prove the assessment is correct—including the value of the improvements. The subject property and the assessment comparables are parking lots. But the improvement assessed value for the subject property was $15,600 and the improvements assessed value for each of the comparables was only $3,000. The Respondent entirely ignored this difference and offered no probative evidence that the subject property’s improvements assessed value is correct.

There is no substantial, probative evidence that the assessed value of the improvements is correct. Therefore, the Respondent failed to make a prima facie case.