THE MARKET DATA APPROACH, HOW COMPARABLE DO COMPARABLE SALES HAVE TO BE?

We recently filed a brief in an unusual case dealing with the valuation of a 10 acre parcel of land on the Long Island Sound in Eastern Long Island.  The valuation is premised on a filed subdivision map.  Certainly, this is a rare parcel of land to value.  Both appraisers used the market data approach to value the land.  Utilizing comparable sales is the most common approach to value vacant land.  If the property is income producing, the law in New York requires the income approach, or the capitalization of income.  41 Kew Gardens Road Associates v Tyburski, 70 NY2d 325 (1987).  Most appraisers will also value income producing property by the market data approach as well.  A reconciliation of both approaches provides an adopted valuation.

In the case pending decision, the condemnor utilized 14 sales.  But none were truly comparable to the subject.  Having a large number of sales really doesn’t help the valuation issue.  In this case, the condemnor’s appraiser’s sales spanned the entire width of Suffolk County.  Sales were used which were located from Hauppauge to Riverhead.  That is some 40 miles apart.  The appraiser had difficulty describing how each sale was comparable to each other.  If they are not comparable to each other, how can they be comparable to the subject?  It should be clear that it is not the number of sales that is important, but the quality of the sale in comparison to the subject.  A few good rules to bear in mind.

Comparable sales must relate to the property being valued and in the vicinity similar to the property taken.  Latham Holding Co. v State of New York, 16 NY2d 41 (1965).  Comparable sales should be similar in size, zoning and use.  Dann v State of New York, 40 AD2d 578 (4th Dept 1972).  Using a property purchased to preserve as open space precludes its consideration because the highest and best use is not the same as the subject.

Where sales of other parcels are used as criteria in the evaluation of a subject property, such sales need to be adjusted to differences between one another and between each of them and the subject property.  Matter of City of New York (Shorefront High School), 25 NY2d 146, 148-149 (1969).  A sufficient and adequate explanation as to how the adjustments were made is required.  Warren v State of New York, 33 AD2d 819 (3d Dept 1969).  Explanations also must be based upon facts and not assumptions.  See Richards v State of New York, 32AD2d 591 (3d Dept 1969).

Finally, comparable sales should be fairly recent and in the same area as the subject property.  Matter of Welch Foods v Town of Westfield, 222 AD2d 1053 (4th Dept 1995).  Comparable sales should not be too remote in location from the subject property.  Martin v State of New York, 33 AD2d 599 (3d Dept 1969).

“The degree of comparability presents a question of fact, leaving adjustments on account of differences to be weighted and evaluated by expert witnesses.”  Latham Holding Co. v State of New York, 16 NY2d 41, 46.  But, courts will not abide by excessive adjustments to a sale since a sale that requires excessive adjustments when compared to the subject is not comparable.  While we are discussing adjustments, it must be stated that there must be sufficient and adequate explanation of all necessary adjustments required.

 

Posted in Comparable Sales, Market Data Approach, Valuation
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