Expert’s Mistake Sinks Valuation Case

Name: McKirdy & Riskin, P.A.
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Home » Property Tax Appeal » Expert’s Mistake Sinks Valuation Case

by: Anthony F. Della Pelle

21 Nov 2012

In Dwight Associates v. Fairfield Twp. the taxpayer appealed the 2009 through 2011 assessments on an industrial/warehouse building in Fairfield (western Essex County). The appraisers for both parties were in agreement on all but one issue – market rent.

The experts agreed that the income approach was the most appropriate valuation method and agreed also on the applicable vacancy/loss collection factors, the operating expenses, and the capitalization rates for the years under appeal. However, there was significant disagreement over the appropriate market rent. The difference in opinion over market rent was driven in large part by what the Tax Court characterized as “an area of significant dissension amongst the experts” over the impact of the existing depth of the loading dock area. The taxpayer’s expert found that the area caused “maneuvering difficulties [that] rendered the subject functionally obsolete.” The taxpayer’s appraiser applied a 15% negative adjustment claiming that the depth of the loading dock area was inadequate to accommodate 53 foot tractor trailers.

The 15% adjustment was based solely on the appraiser’s observation of truck maneuvering in this area and discussions with the landlord and a real estate broker. Fairfield argued that the adjustment was not based on any engineering, nor was it supported by the market data in the record. As such, Fairfield argued that the conclusion of the taxpayer’s appraiser was nothing more thana “net” opinion.

While the Tax Court agreed that whether the site provided an adequate turning radius is best left to an engineer, it did not go so far as to hold the adjustment to be a net opinion. The court recognized that appraisers routinely analyze such properties and that part of their analysis includes a review of the physical characteristics, including loading areas that are relevant in analyzing comparability. The court identified the issue as whether the taxpayer’s expert supported his conclusion of functional obsolescence with objective data. In this case, the court found no so such proof existed and adopted the value arrived at by Fairfield’s expert.

Had the taxpayer’s expert provided objective, market data, which illustrated that properties with deficient loading areas and operations rent for less money than properties with adequate loading, then the adjustment made – based upon such objective evidence – would have been more likely to be accepted. Without such evidence, the taxpayer’s valuation case failed.