2015 Property Tax Sym - Ripans & McNaught PowerPoint 2015-11-02 2321

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  1. RULES OF EVIDENCE ON OPINIONS OF MARKET VALUE IN COURT OR ADMINISTRATIVE HEARINGS 2015IPTPropertyTaxSymposium Jon M. Ripans The Ripans Law Firm, LLC…
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  • 1. RULES OF EVIDENCE ON OPINIONS OF MARKET VALUE IN COURT OR ADMINISTRATIVE HEARINGS 2015IPTPropertyTaxSymposium Jon M. Ripans The Ripans Law Firm, LLC Valuation Matters, LLC Atlanta, Georgia ripanslaw@gmail.com Jeffery J. McNaught The Law Offices of Jeffery J. McNaught Minneapolis, Minnesota jeff@jmcnaughtlaw.com
  • 2. 2015 IPT Property Tax Symposium This session is a multi-jurisdictional survey of the rules governing the types of witnesses who are deemed competent to give opinion of value evidence in courts of record, tax tribunals, and administrative hearings. Given the sheer volume of cases, it is impractical to provide detailed case information here. Case law annotations and citations can be found on the LinkedIn page for Jon Ripans: ​http://www.linkedin.com/in/jonripans OPINIONS OF MARKET VALUE
  • 3. 2015 IPT Property Tax Symposium Individuals in roles such as assessors, appraisers, property owners, real estate brokers, tax consultants, and others will be discussed. The goal is to learn more about the requirements in place for multiple jurisdictions and discuss how various jurisdictions across the country have treated opinion of value in other cases. OPINIONS OF MARKET VALUE
  • 4. 2015 IPT Property Tax Symposium The goals of this session are to: Identify witnesses who can give opinion of value testimony; Learn the various settings in which opinion of value testimony is presented; and Differentiate how courts in various jurisdictions treat opinion of value testimony. OPINIONS OF MARKET VALUE
  • 5. 2015 IPT Property Tax Symposium The Fundamental Assumptions Underlying This Presentation: The rules of evidence are mostly exclusionary rules designed to prevent lay jurors from being misled, prejudiced, or tainted by “bad” evidence. Court proceedings, with or without a jury, have the strictest rules of evidence in most jurisdictions. The rules of evidence, if any, for administrative hearings, such as boards of equalization, tax tribunals, property tax hearing officers, etc., are almost always less strict than the rules of evidence in courts of record. OPINIONS OF MARKET VALUE
  • 6. 2015 IPT Property Tax Symposium The Fundamental Assumptions Underlying This Presentation (cont’d): Therefore, if evidentiary rules or court cases in a given jurisdiction say that certain persons may provide opinion of value testimony, then those categories of persons are likely to be competent witnesses for opinions of value in property tax appeals at all levels. Examples include, but are clearly not limited to the following: Appraisers Brokers Individual Property Owners Corporate Property Owners OPINIONS OF MARKET VALUE
  • 7. 2015 IPT Property Tax Symposium The Key Distinction in Evidentiary Matters is Admissibility vs. Weight and Credibility The fundamental analysis in the use of evidence is a two-step process: Step One is the Admissibility of Evidence What types of evidence are admissible? Who is a competent witness for each type evidence? What evidentiary foundation is needed to admit the evidence? Step Two is what Weight and Credibility should the trier of fact give the evidence. OPINIONS OF MARKET VALUE
  • 8. 2015 IPT Property Tax Symposium The Key Distinction in Evidentiary Matters is Admissibility vs. Weight and Credibility (cont’d).  Weight and Credibility is an infinite topic that is beyond the scope of this presentation because it involves how the trier of fact – a jury or a judge sitting without a jury – perceives the credibility of the evidence and what weight they choose to give to it. OPINIONS OF MARKET VALUE
  • 9. 2015 IPT Property Tax Symposium The Key Distinction in Evidentiary Matters is Admissibility vs. Weight and Credibility (cont’d). Similarly, it is far beyond the scope of a one-hour presentation to cover all types of evidence that could be used to argue value, but we will go over some of them.  Cost Approach: Land, Construction Costs, Depreciation, Deferred Maintenance, Functional Obsolescence, External Obsolescence  Income Approach: Market Rents, Other Income, Market Vacancy, Expenses, Cap Rate, Lease-Up/Stabilization  Sales Comparison Approach: Comparables, Adjusting the Comparables to Subject Property OPINIONS OF MARKET VALUE
  • 10. 2015 IPT Property Tax Symposium There are two types of witnesses: Fact Witnesses with first-hand knowledge of particular facts Opinion Witnesses who can give an opinion on the ultimate issue in dispute and who are one of three types: Expert Opinion Witnesses Skilled Witnesses Lay Opinion Witnesses OPINIONS OF MARKET VALUE
  • 11. 2015 IPT Property Tax Symposium It almost seems as if the following case from Wyoming sums it up: A witness who asserts an opinion of the value of property not supported by facts is not competent, and an expert opinion is not substantial evidence unless he can give a satisfactory explanation of how he arrived at his opinion. Chicago & N. W. Ry. Co. v. Hillard, 502 P.2d 189 (Wyo. 1972). OPINIONS OF MARKET VALUE
  • 12. 2015 IPT Property Tax Symposium The following case from New Jersey also seems to sum up the overall concepts quite well: Permitting witness to testify as expert on value of easement condemned for electric line was discretionary where he had made thousands of appraisals, notwithstanding his use of alleged hearsay as to comparable sales. N.J.S. 2A:83-1, N.J.S.A. Rockland Elec. Co. v. Bolo Corp., 66 N.J. Super. 171, 168 A.2d 817 (App. Div. 1961). OPINIONS OF MARKET VALUE
  • 13. 2015 IPT Property Tax Symposium Generally, individual owners (as opposed to corporate owners) of real property are competent opinion of value witnesses in all jurisdictions surveyed, except I do not have a case citation for Michigan, New Jersey, Rhode Island. [Corporate owners are also competent in most jurisdictions]. OPINIONS OF MARKET VALUE
  • 14. 2015 IPT Property Tax Symposium Some jurisdictions have explicit statutes (Georgia and Alabama) or case law that state or strongly suggest that any person is competent to give an opinion of value so long as there is some sort of evidentiary foundation; methodology or knowledge superior to the trier of fact’s (judge or jury); or both. See Alabama, Arizona, Arkansas, Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Jersey, New York, North Carolina, North Dakota, Ohio, Oregon, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, West Virginia, Wisconsin, Wyoming. OPINIONS OF MARKET VALUE
  • 15. 2015 IPT Property Tax Symposium Corporate Owners, like most witnesses, are generally not qualified unless evidentiary foundation and basis for opinion of value are demonstrated. See Colorado, Iowa, Maine, Massachusetts, Nevada, North Carolina, Oregon, Texas. OPINIONS OF MARKET VALUE
  • 16. 2015 IPT Property Tax Symposium Brokers and Real Estate Agents are generally competent to testify if an evidentiary foundation and a basis for their opinion of value is demonstrated, although weight and credibility are still in the eye of the trier of fact. See Arizona, California, Connecticut, Louisiana, Massachusetts, Missouri, New York, Ohio, Oklahoma, Pennsylvania, Rhode Island, Tennessee, Texas. OPINIONS OF MARKET VALUE
  • 17. 2015 IPT Property Tax Symposium Again, given the sheer volume of cases, it is impractical to provide detailed case information here. Case law annotations and citations can be found on the LinkedIn page for Jon Ripans: ​http://www.linkedin.com/in/jonripans OPINIONS OF MARKET VALUE
  • 18. 2015 IPT Property Tax Symposium Some Observations on the Weight and Credibility of Various Witnesses’ Fact or Opinion Testimony Regarding Various Aspects of the Cost Approach. Land Construction Costs Depreciation Deferred Maintenance Functional Obsolescence External Obsolescence OPINIONS OF MARKET VALUE
  • 19. 2015 IPT Property Tax Symposium Some Observations on the Weight and Credibility of Various Witnesses’ Fact or Opinion Testimony Regarding Various Aspects of the Income Approach. Market Rents Other Income Market Vacancy Expenses Cap Rate Lease-Up/Stabilization OPINIONS OF MARKET VALUE
  • 20. 2015 IPT Property Tax Symposium Some Observations on the Weight and Credibility of Various Witnesses’ Fact or Opinion Testimony Regarding Various Aspects of the Sales Comparison Approach. Comparables Adjusting the Comparables to Subject Property OPINIONS OF MARKET VALUE
  • 21. 2015 IPT Property Tax Symposium Expert and Witness Reports The Report – Written Manifestation of the Witness’s Opinion Witness can be cross examined on report Witness underlying data/basis revealed Witness credibility and weight of opinion evaluated by the finder Report – Commonly referred to as an “Appraisal” OPINIONS OF MARKET VALUE
  • 22. 2015 IPT Property Tax Symposium Definition of “Appraisal” Appraisal Institute/USPAP – “an appraisal is ‘the act or process of developing an opinion of value’ of an asset.” Minnesota Statutes – “Appraisal” or “real estate appraisal” means an analysis, opinion, or conclusion relating to the nature, quality, value, or utility of named interests in, or aspects of, identified real estate for purposes of preparing an appraisal report. OPINIONS OF MARKET VALUE
  • 23. 2015 IPT Property Tax Symposium Minnesota Statutes - "Appraisal report" means an oral or written communication of an appraisal for compensation … given or signed by a licensed real estate appraiser. OPINIONS OF MARKET VALUE
  • 24. 2015 IPT Property Tax Symposium Other reports can be evidence in a valuation proceeding: Letter of Intent Purchase Agreement Purchase Offer Broker Price Opinion But are such reports “appraisals”? OPINIONS OF MARKET VALUE
  • 25. 2015 IPT Property Tax Symposium  Broker Price Opinion  Definition – Appraisal Institute – “An opinion of property price rendered by a licensed real estate agent or broker.”  Definition – Minnesota Statutes – "broker price opinion" or "BPO" means an estimate prepared by a real estate broker, real estate salesperson, or licensed real estate appraiser that details the probable selling price of a particular parcel of real property and provides a varying level of detail about the property's condition, market, and neighborhood, and information on comparable sales, but does not include an automated valuation model.”  “Automated valuation model” – a computerized model used by mortgage originators and secondary market issuers to determine the collateral worth of a mortgage secured, or to be secured, by a consumer’s principal dwelling. OPINIONS OF MARKET VALUE
  • 26. 2015 IPT Property Tax Symposium Definition - “Market analysis” or “broker price opinion” means a price opinion prepared by a licensed real estate salesperson, broker, or real estate appraiser in accordance with [Minn. Stat. §82.735.] OPINIONS OF MARKET VALUE
  • 27. 2015 IPT Property Tax Symposium Requirements for Broker Price Opinion Must be in Written form Must contain: Statement of purpose Description of property Basis for opinion on the price Applicable market data Assumptions and limiting conditions OPINIONS OF MARKET VALUE
  • 28. 2015 IPT Property Tax Symposium  Required language - “This opinion is not an appraisal of the market value of the property, and may not be used in lieu of an appraisal. If an appraisal is desired, the services of a licensed or certified appraiser must be obtained.” Minn. Stat. §82.735, subd. 3(a)(9).  Required disclosure – “An appraiser preparing a broker price opinion shall disclose that the appraiser is not acting as an appraiser in preparing the broker price opinion and that the broker price opinion is not an appraisal or appraisal assignment and, therefore, is not subject to USPAP.” Minn. Stat. §82B.035, subd. 1(b). OPINIONS OF MARKET VALUE
  • 29. 2015 IPT Property Tax Symposium Broker Price Opinion v. Appraisal Cost Preparation Time Degree of analysis (income analysis/evaluation of comparable sales) Licensed Appraisers write Appraisals Agents, brokers, appraisers can write BPOs BPO not subject to USPAP requirements and certifications Conclusion of Price (what asset should list for) not Value (willing buyer/willing seller, arms length transaction) OPINIONS OF MARKET VALUE
  • 30. 2015 IPT Property Tax Symposium Case Study – 1501 Partnership v. Hennepin County (Minnesota) Statute – BPO is not an appraisal BPO – statutory mandated language BPO is NOT an appraisal BPO must include language that it is NOT an appraisal Statute – Appraisal must be delivered 5 days before trial Non-compliance – dismissal of case OPINIONS OF MARKET VALUE
  • 31. 2015 IPT Property Tax Symposium Timing and Cost Effectiveness Close in to hearing date Property value did not justify trial appraisal BPO prepared and delivered 3 days before Trial – Motion to Dismiss Exchange date had passed Court – BPO is an Appraisal OPINIONS OF MARKET VALUE
  • 32. 2015 IPT Property Tax Symposium Court’s Opinion Applied a broad definition of “Appraisal” Miriam Webster – “appraisal” is “something that states an opinion about the value, condition, or importance of something.” Appraisal is not a technical term Statutes defining and regulating BPO/Appraisal are licensing rules; do not govern whether a document is an appraisal for purposes of property tax appeals. “We decline to characterize ‘appraisal’ as a technical term for purposes of [appraisal exchange].” OPINIONS OF MARKET VALUE
  • 33. 2015 IPT Property Tax Symposium  Statutory definitions and technical treatment of the Appraisal and BPO do not apply to Tax Court Implications of Broad Interpretation of the term “Appraisal” Any statement that includes any substantive mention or position on worth can be considered an appraisal Expanded use of other reports as additional or alternative evidence Potential for motions to exclude materials if not timely exchanged or shared OPINIONS OF MARKET VALUE
  • 34. 2015 IPT Property Tax Symposium What opinions constitute an appraisal and who may be an appraiser? Broker’s opinion is an appraisal Agent’s opinion is an appraisal Owner’s opinion is an appraisal Property manager’s opinion is an appraisal Tenant’s opinion is an appraisal Banker’s opinion is an appraisal OPINIONS OF MARKET VALUE
  • 35. 2015 IPT Property Tax Symposium What written materials may be appraisals Broker Price Opinion Letter of Intent Purchase Agreement Purchase Offer Mortgage Owner/accountant income proforma Blog page/email/communication OPINIONS OF MARKET VALUE
  • 36. 2015 IPT Property Tax Symposium Relaxed regard as to “Appraisal” All qualified testimony regarding a property’s value must be considered Court must look to the substance of the report to determine whether the document is an appraisal Issues of the weight to be given the evidence become the key factor OPINIONS OF MARKET VALUE
  • 37. 2015 IPT Property Tax Symposium Conclusion Alternative valuation services and reports have achieved regard in many areas where formal appraisal analyses have traditionally been the sole source of valuation authority. BPO originally an advisory tool for property pricing BPOs have been used in the mortgage issuing area, as a substitute for appraisal Minnesota recognized the BPO as an appraisal for purposes of property tax assessment review OPINIONS OF MARKET VALUE
  • 38. 2015 IPT Property Tax Symposium Jon M. Ripans The Ripans Law Firm, LLC Valuation Matters, LLC Atlanta, Georgia ripanslaw@gmail.com Jeffery J. McNaught The Law Offices of Jeffery J. McNaught Minneapolis, Minnesota jeff@jmcnaughtlaw.com OPINIONS OF MARKET VALUE
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