Rules of Evidence on Opinions of Market Value

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

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

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.

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.

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.

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

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.

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.

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

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

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).

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).

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].

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.

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.

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.

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

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

Aspects of the Income Approach.
Market Rents
Other Income
Market Vacancy
Expenses
Cap Rate
Lease-Up/Stabilization

Aspects of the Sales Comparison
Approach.
Comparables
Adjusting the Comparables to Subject Property

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”

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.

Minnesota Statutes - "Appraisal report"
means an oral or written communication
of an appraisal for compensation … given
or signed by a licensed real estate
appraiser.

Other reports can be evidence in a
valuation proceeding:
Letter of Intent
Purchase Agreement
Purchase Offer
Broker Price Opinion
But are such reports “appraisals”?

 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.

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.]

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

 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).

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)

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

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

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].”

 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

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

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

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

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

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

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