PROVING FAIR MARKET VALUE BY THE MARKET DATA APPROACH. ARE YOUR COMPARABLES REALLY COMPARABLE?

An appraisal presents a pure factual presentation of data and information utilized by an expert to conclude to an opinion of value.  In New York State, an appraisal is required to be exchanged and filed pursuant to Court Rule.  22 NYCRR Sec. 202.61.  See Miriam Osburn Memorial Home Assoc. v Assessor of Rye, 2004 N.Y. Slip. Op. 50793 (U) (West. Sup. Ct. 2004).

The Appraisal Rule allows the parties to prepare for trial with knowledge of each other’s valuations and the foundations and justifications thereof.  Parisi v State, 62 Misc2d 378, 382 (Ct. Cls., 1979).  As the Fourth Department stated in Novickis v State of New York, 44 AD2d 508, 512 (4th Dept 1974), “[s]imply expressed, the rule attempts to require full disclosure, to take the game aspect out of the case, to prevent surprises, to permit the court to determine just compensation based solely upon the facts unhindered by gamesmanship.”

Most eminent domain trials involve complicated factual issues involving critical determinations that must be made by a court.  Not only are there issues of highest and best use of the land, both before and after a partial taking, but there are critical issues involving comparable sales and valuation.

Case law emphatically holds that an appraisal is not the substitute for an expert’s direct testimony.  The appraisal report is not in itself evidence; its function is to enable adequate and intelligent preparations of the issues for trial and to limit expert testimony at trial.  It is not intended as a substitute for evidence.  A trial is required to place the appraisal reports and other evidence before the trier of facts to establish the value of the property taken.  Matter of Town of Guilderland, 267 AD2d 837 (3d Dept 1999) citing Homer v State of New York, 36 AD2d 333, 335 affd 30 NY2d 722 (1972).

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. 

          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. 

          New York has long established that comparable sales may be used to establish the value of the condemned parcel.  Lawrence v Greenwood, 300 NY 231 (1949).  As was stated by the Court of Appeals in Matter of Board of Water Supply, 277 NY 452, 457 (1938), “[i]n a general way, the market value of real property is the amount which one desiring but not compelled to purchase will pay under ordinary conditions to a seller who desires but is not compelled to sell.”  Put another way, “fair market value is the price for which a seller would sell if there was a willing buyer who was under no compulsion to buy and a willing seller under no compulsion to sell.”  Keator v State of New York, 23 NY2d 337, 339 (1968).

          “Fair market value” means neither panic value, auction value, speculative value, nor a value fixed by depressed or inflated prices.  A fair market value is not established by sales where prices offered are so small that only sellers forced to sell will accept them. Matter of Board of Water Supply, Supra, 27 NY 452, 459 (1938).

          One thing is for sure, an estate sale is not a fair market sale.  New York State Urban Development Corp. v Goldfeld, 50 AD2d 1068 (4th Dept 1975).

          Nor is a sale by a trust or any other eleemosynary institution.

Posted in Appraisal Rule, Comparable Sales, Market Data Approach, Uncategorized
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