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Appraising for the Tax Court. By Charles E. Blau, Esq. IFAC National Association of Independent Fee Appraisers 2012 National Conference Secaucus, New Jersey. Appraiser’s Role . Assist the Trier of Fact

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appraising for the tax court

Appraising for the Tax Court

By

Charles E. Blau, Esq. IFAC

National Association of Independent Fee Appraisers 2012 National Conference

Secaucus, New Jersey

appraiser s role
Appraiser’s Role
  • Assist the Trier of Fact
  • Your appraisal may be brilliant, but if you are unable to assist the Judge in understanding how you got to your value you have failed as a witness.
slide3

Sure you have a great resume are honest and a nice guy, so the judge should just believe you. ( the other guy has a great resume too)

  • Facts: An experts opinion raises no higher than the facts.
what s wrong with this write up
What’s wrong with this write-up?
  • Sale Number 1
  • Location: 319 Self Place, Orange, New Jersey
  • Block/Lot: 45/11
  • Grantor: James Tinkers
  • Grantee: Evers Chance
  • Date of Sale: July 4, 2010
  • Book/Page: 4511/23
  • Sale Price: $550,000
  • Lot Size (SF): 4,500
  • Zoning: Commercial
  • Building Size (SF):3,332
  • Verification: Deed
  • Description: One story and basement store
  • Sale Price/SF:$165.07
what s wrong with this write up1
What’s wrong with this write-up?
  • Sale Number 2
  • Location: 45 Main Street, Orange, NJ
  • Grantor: Robert Zimmerman
  • Block/Lot: 55/19
  • Grantee: Richard Starkey
  • Date of Sale: August 8, 2009
  • Book/Page: N.A.
  • Sale Price: $970,000
  • Lot Size (SF): 8,500
  • Zoning: Commercial
  • Building Size (SF):6,500
  • Verification: Assessor
  • Description: One story commercial in inferior condition compared to subject.
  • Sale Price/SF: $149.23
what s wrong with this write up2
What’s wrong with this write-up?
  • Sale Number 3
  • Location: 6 Webster Place, Bogota, New Jersey
  • Block/Lot: 123C/19
  • Grantor: James Madison
  • Grantee: Dolly Madison
  • Date of Sale: March 4, 2010
  • Book/Page: 4521/211
  • Sale Price: $250,000
  • Lot Size (SF): 7,500
  • Zoning: Commercial
  • Building Size (SF): 5,500
  • Land To Bldg. Ratio1.36:1
  • Verification: Benedict Arnold
  • Description: Industrial
  • Sale Price/SF: $45.45
  • 6 Webster Place, Bogota, New Jersey
what does verify mean
What Does Verify Mean?
  • Assessor
  • Deed
  • Broker
  • Buyer/Seller
what does verify mean1
What Does Verify Mean?
  • Deed Abstract (SR-1A)
  • Attorney
  • Appraiser
non useable sales
Non Useable Sales
  • NU 6 –Sales of only a portion of the assessed unit
  • NU 7 – Substantially improved after assessment
  • NU 10 – Sale by Guardian, Trustee, etc.
  • NU 23 – includes machinery, fixtures
  • NU 26 - Some Other Reason
non useable sales1
Non Useable Sales
  • NU 31 First Sale after foreclosure
  • According to The Appraisal Foundation’s Appraisal Practices Board Valuation Advisory issued May 7, 2012
slide11

Some think using comparable sales that were bank owned properties or short sales, should be precluded as comparable sales.

slide12

The Appraisal Foundation says that while this may be possible in some markets, this cannot be done in many other markets.

  • There are markets were nearly all sales are bank-owned, short sales or other financially distressed sellers.
comparable sales
Comparable Sales
  • All of your adjustments make sense, but what if conclusion doesn’t? Smell Test.
  • Adjustments against your interest.
  • Can’t prove be conservative.
photos
Photos
  • Google earth
  • Not there?
  • Interiors?
  • Consistency
uspap
USPAP
  • You care, but no one else does.
appraisal report
Appraisal Report
  • Make it easy to follow
  • Addenda
  • Reference page numbers as you talk
  • Wait until everyone on same page
sales comparison approach
Sales Comparison Approach
  • Income Property without knowledge of income and expenses
  • Magnitude of Adjustments
  • As a check
i was told i can t use that
I was told I can’t use that
  • Don’t Reject Your Own Sales
sale of subject
Sale of Subject
  • Should be the end of the story but often isn’t.
  • Other side will do its best to discredit the sale if it hurts them.
  • You should try to prove that it meets the definition of market value.
date of sale
Date of Sale
  • Town’s will often tell you that the sale must be before October 1, of the pre tax year.
  • Best that most of your sales are before October 1 .
date of sale1
Date of Sale
  • Ok if some of the sales are after.
  • When was contract?
  • Was it on market before October 1st?
what is a comparable sale
What is a comparable Sale?
  • Does the sale meet the definition of market value?
  • Was it exposed to the market?
  • Was there a broker?
  • Was the seller under duress?
  • Was there unusual financing?
  • Does the sale have the same highest and best use as the subject property?
assumptions and boilerplate
Assumptions and Boilerplate
  • What if assumption is wrong, would it change your conclusion?
  • Read your boilerplate
support for adjustments
Support for Adjustments
  • Paired sales
  • Market Studies
  • “…after years and years of experience and discussions with those knowledgeable in the market…”
experience
Experience
  • I believe the bright 17 year old high school student in elementary astronomy can do a better job estimating the distance to the moonthan the old man of the mountains who has looked at the moonfor 80 years. I would not give a red cent for an appraisal by the ‘expert’ who beats his breast and shouts: ‘I don't have to give reasons. I've had 40 years experience in this business.
demonstrative evidence
Demonstrative Evidence
  • Sale 3
  • You can say that the
  • “Property is in poor condition”
theme of the case
Theme of the Case
  • What is it?
  • Don’t let it get lost in the sauce
economic rent
Economic Rent
  • Economic Rent in New Jersey(Market Rent) Controls.
  • Terms
  • Adjustments
  • Photos
  • Concessions
  • Source
  • Tenant Improvements
vacancy rate
Vacancy Rate
  • Stabilized
  • Support
  • Studies
  • 10 year history
capitalization rate
Capitalization Rate
  • You must have some support for your cap rate.
  • Band of Investment - based on what?
  • ACLI , Korpacz, Real Estate Research Corp, other
  • Market Derived.
  •  Not based on “your experience.” or the usual. 
expenses
Expenses
  • The Tax Court examines expense very critically.
  • The courts are very suspicious if you examine only the current year’s expenses.
  • Expenses can vary dramatically from year to year.
  • Therefore you should examine at least 3 years and stabilize the the expenses to predict

a typical year.

cost approach
Cost Approach
  • Don’t use it unless it really applies.
  • And then you better do it right. First sign you didn’t do it at all is everything ends in a zero.
  • Don’t just add site value.
  • Just because its on your form you don’t need to do it.
what else do you need to know besides your appraisal
What else do you need to know besides your Appraisal?
  • Appraisal Theory
  • USPAP
  • A little law of Tax Appeals in your Jurisdiction
      • Valuation Date
      • Leased Fee v Fee Simple
other things to remember
Other Things to Remember
  • Know your weak spot, it will be attacked
  • What if you have a great comp, but can’t verify it when you write your appraisal?