Here, the Respondent submitted the sales disclosure form from the purchase of the subject property for $750,000 on December 1, 2006, which is only one month from the January 1, 2007, valuation date for the March 1, 2008, assessment date. The Respondent also submitted evidence that the property previously sold in 2004 for $650,000 to support the reliability and credibility of the $750,000 sale price in 2006.
The purchase price of a property is often the best indication of the property’s value. See Hubler Realty, Inc. v. Hendricks County Assessor, 938 N.E.2d 311, 314 (Ind. Tax Ct. 2010) (the Tax Court upheld the Board’s determination that the weight of the evidence supported the property’s purchase price over its appraised value). The Petitioner’s representative argued, however, that the purchase of the property was part of a 1031 exchange. Likewise, the appraisal reports that the purchasers were “under some time constraints as far as identifying a property so as not to lose the tax benefits of the 1031 exchange.” However, the appraiser also suggested that the Petitioner’s purchase price simply reflected the market at the time: “at the time of the purchase in 2006 market prices of apartment properties were being pushed up by speculation that later proved to be lacking in sound market fundamentals.” Thus, the Board can conclude that the price the Petitioner paid for the subject property was as much the result of the existing market conditions as it was related to any 1031 exchange credits.
More importantly, the sales disclosure form, signed under penalties of perjury by Mr. Bosnjak, affirmatively represents that “no conditions apply” when asked to “describe any unusual or special circumstances related to the sale.” Therefore, because neither the purchasers, nor the sellers, appeared at the hearing to testify that the purchase of the subject property was anything other than an arms-length transaction, the Board finds that the evidence of the property’s sales price in 2006 is sufficient to raise a prima facie case that the property was correctly assessed for the March 1, 2008, assessment date.
Once the Respondent establishes a prima facie case, the burden shifts to the Petitioner to rebut or impeach the Assessor’s evidence. Here the Petitioner’s representative submitted an appraisal of the subject property prepared by a certified appraiser who attested that he prepared the appraisal in accordance with the Uniform Standards of Professional Appraisal Practice (USPAP). The appraiser estimated the value of the subject property as of March 1, 2009, to be $350,000 using the sales comparison approach and to be $475,000 using the income approach to value and the appraiser reconciled those values to $375,000 for the property. The valuation date for the 2008 assessment was January 1, 2007, and the valuation date for the 2009 assessment was January 1, 2008. The Petitioner’s representative trended the appraised value to the proper valuation dates using the Consumer Price Index. Therefore, the Petitioner provided sufficient evidence to rebut the Respondent’s prima facie case that the property was properly assessed for the 2008 assessment date and raised a prima facie case that the subject property was over-valued for the 2009 assessment date.
Both the purchase evidence presented by the Respondent and the appraisal presented by the Petitioner are sufficient to raise a prima facie case. Therefore, the Board must weigh the evidence presented in this matter. But the Petitioner’s appeals must be determined from the rule specified in Indiana Code § 6-1.1-4-39(a). In other words, because the lowest value indicated by the cost approach, the income capitalization approach, or the sales comparison approach is required, the credibility of the purchase price offered by the Respondent must be weighed against the credibility of the sales comparison approach and the income approaches offered by the Petitioner. But there are no general rules that one type of evidence is more credible than another.
Here, the lowest value estimated for the subject property presented to the Board was the Petitioner’s appraisal’s “sales comparable approach” value of $350,000. The Petitioner’s appraiser used three comparable properties in his sales comparison approach. But despite noting differences between each of the comparable properties and the subject property, the appraiser made no quantitative adjustments to any of the comparable sales. Nor did he make any qualitative adjustments. The appraiser merely concluded that “Comp 3 has a similar location, similar condition, slightly superior unit mix and a similar tenant appeal” and estimated the subject property’s value to be identical to the sale price of that property. In order to effectively use the sales comparison approach as evidence in property assessment appeals, however, the proponent must establish the comparability of the properties being examined. Conclusory statements that a property is “similar” or “comparable” to another property do not constitute probative evidence of the comparability of the properties being examined. Long, 821 N.E.2d at 470. Instead, the party seeking to rely on the sales comparison approach must explain the characteristics of the subject property and how those characteristics compare to those of the purportedly comparable properties. See id. at 470-71. They must explain how any differences between the properties affect their relative market value-in-use. Id. Although it is within an appraiser’s expertise to choose the properties that he or she deems most comparable to the subject property and to make adjustments to those properties, failing to make any qualitative or quantitative adjustments despite noting differences between the subject property and the properties being used as comparable sales lacks reliability and credibility. The Board therefore finds the appraiser’s sales comparable analysis has insufficient probative value to support a reduction in the property’s assessed value to $350,000.
In addition, the Petitioner’s appraiser performed an income analysis and estimated the property’s value to be $475,000. The appraiser estimated the property’s rent to be $100,440 minus a vacancy rate of 9%, resulting in an effective gross annual rent of $91,400. After subtracting the forecasted expenses of $55,997, including real estate taxes, the appraiser arrived at a net operating income of $35,403. The appraiser reported that the overall capitalization rates were “estimated to be between 7% and 8%” and concluded that the value of the subject property was $505,757 with a 7% capitalization rate and $442,537 with an 8% capitalization rate, which he then averaged for an estimated value of $475,000, as of March 1, 2009. The appraiser stated in his report that the intended use of the appraisal was to protest the 2009 assessed value of the subject property. But when valuing property for ad valorem tax purposes, subtracting real estate taxes as an expense “distorts the final estimate of value.” Millennium Real Estate Investment, LLC v. Benton County Assessor, 979 N.E.2d 192, 197 (Ind. Tax Ct. 2012) (upholding Board’s decision to assign less weight to appraisal deducting real estate taxes as an expense). Further, as noted above, the appraiser did not select a specific capitalization rate. He merely found that a range of capitalization rates applied at the time. Despite the fact that some issues are apparent in the appraiser’s income analysis, however, the Board finds the appraiser’s income approach sufficiently reliable to be some evidence of the property’s market value.
The Petitioner’s representative also presented an income approach to value the subject property. In his analysis, Mr. Rivera used the site-specific income and expenses. But the “income approach to value is based on the assumption that potential buyers will pay no more for the subject property … than it would cost them to purchase an equally desirable substitute investment that offers the same return and risk as the subject property.” MANUAL at 14. The income approach thus focuses on the intrinsic value of the property, not upon the Petitioner’s operation of the property. See Thorntown Telephone Company, Inc. v. State Board of Tax Commissioners, 588 N.E.2d 613, 619 (Ind. Tax Ct. 1992). See also MANUAL at 5 (“[C]hallenges to assessments [must] be proven with aggregate data, rather than individual evidence of property wealth. …[I]t is not permissible to use individual data without first establishing its comparability or thereof to the aggregate data”). Because Mr. Rivera provided no evidence to demonstrate that the property’s income and expenses were typical for comparable properties in the market, any low income or high expense levels may be attributed to the Petitioner’s management of the property as opposed to the property’s market value. See Lake County Trust Co. No. 1163 v. State Board of Tax Commissioners, 694 N.E.2d 1253, 1257-58 (Ind. Tax Ct. 1998) (economic obsolescence was not warranted where taxpayer executed unfavorable leases resulting in a failure to realize as much net income from the subject property).
Mr. Rivera also failed to adequately support his choice of capitalization rates. Here the entirety of Mr. Rivera’s testimony regarding his capitalization rate was that he “used the appropriate cap rate information to determine a 13.66% cap rate” and that he “provided the tax bill to reflect an effective tax rate.” In his exhibits, Mr. Rivera included a RealtyRates.com “Investor Survey” and included the following “cap rate derivation” calculation:
Components Proportion Rate Product
Mortgage 75% 6.410% 4.81%
Equity 25% 10.745% 2.69%
Discount 7.49%
Recapture (based on 40 year life) 2.50%
Effective Tax Rate (’08 pay ’09) 3.79%
Land 5% 0.564%
Improvements 95% 13.094%
Overall Rate 13.66%
The Investor Survey that Mr. Rivera purports to rely upon shows that mortgage rates ranged from .058661 to .120786 and equity rates ranged from .071400 to .163500 in 2007 and mortgage rates ranged from .052415 to .118662 and equity rates ranged from .074700 to .160100 in 2008. But Mr. Rivera failed to explain the basis for any of the values he used to calculate his capitalization rate. While the rules of evidence generally do not apply in the Board’s hearings, the Board requires some evidence of the accuracy and credibility of the evidence. See Whitley Products, Inc. v. State Board of Tax Commissioners, 704 N.E.2d 1113, 1119 (Ind. Tax Ct. 1998). And, in fact, Mr. Rivera’s capitalization rate differs greatly from the capitalization rate used by the appraiser in his income analysis. Consequently, the Board finds that Mr. Rivera’s income analysis is less reliable than the other methods of valuing the property that were offered in the hearing.
Finally, the Respondent submitted a sales disclosure form showing that the property was purchased for $750,000 on December 1, 2006. While the purchase is only one month from the January 1, 2007, valuation date for the March 1, 2008, assessment date, it is over a year removed from the January 1, 2008, valuation date for the March 1, 2009, assessment. In addition, the purchase of the property was part of a 1031 exchange. And the appraisal reports that the purchasers were “under some time constraints as far as identifying a property so as not to lose the tax benefits of the 1031 exchange.” While the Respondent submitted an earlier sale to “support” the property’s 2006 purchase price, the previous purchase occurred in May of 2004 and the Respondent presented no evidence relating that sale to relevant valuation dates for either the Petitioner’s 2008 or 2009 appeals. Despite these issues, however, the Board finds the property’s 2006 purchase price sufficiently reliable to be some evidence of the property’s market value.
Each method of valuation offered by the parties to prove the property’s value for the 2008 and 2009 assessment dates has its faults, but the Board’s obligation in these appeals is to weigh the evidence presented in this matter and apply the appropriate law. Here, the Board finds both the purchase price of the property for $750,000 and the appraiser’s income approach estimate of $475,000 to be somewhat reliable estimates of the property’s value. But for the reasons stated above, the Board finds the appraiser’s sales comparison analysis valuing the property at $350,000 and Mr. Rivera’s income calculation to have insufficient reliability and credibility to form a basis for this Board’s decision. Because Indiana Code § 6-1.1-4-39(a) requires that the true tax value of an apartment building with more than four units be the lowest value determined from the three generally accepted approaches to value, the Board finds that the value of the subject property for 2008 and 2009 is the property’s income value. Trending the $475,000 income value to the relevant valuation dates based on the Petitioner’s CPI evidence, results in a value of approximately $442,750 for the 2008 assessment date and approximately $457,865 for the 2009 assessment date.
