Fuad Burucuoglu v. Borough of Paramus

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE TAX COURT

COMMITTEE ON OPINIONS

 

August 27, 2013

David B. Bole, Esq.

Winne, Dooley & Bole

240 Fritsch Court, Suite 301

Paramus, New Jersey 07652

Arthur E. Balsamo, Esq.

355 Nelson Avenue

Cliffside Park, New Jersey 07010

Re: Fuad Burucuoglu v. Borough of Paramus

Docket No. 015724-2010; 015759-2011

Dear Counsel:

This letter constitutes the court s decision following a trial challenging the 2010 and 2011 tax assessments on plaintiff s property. For the reasons set forth below, the assessments are affirmed.

Plaintiff s property is located in the Borough of Paramus, Bergen County designated on the official Borough tax map as Block 4404, Lot 1 ( subject property or subject ), also known as 110 East Midland Avenue. It was assessed for tax years 2010 and 2011 as follows:

Land $281,200

Improvements $834,900

Total $1,116,500

 

The Chapter 123 common level range for Paramus for the 2010 tax year is 86.81%. For 2011, the Chapter 123 common level range for Paramus is 92.90%. Plaintiff appeals from the County Tax Board Judgments rendered for 2010 and 2011, which affirmed the assessments. At trial a certified real estate appraiser was qualified without objection and provided testimony on plaintiff s behalf. The court found the defendant s witness qualified to render an expert opinion of the value of the subject over plaintiff s objection.1 Each expert testified about the substance of an appraisal report entered into evidence without objection and opined on the value of the subject property using the sales comparison approach to value. Defendant s expert relied as well on the cost approach.2

The comparable sales relied on by both experts for the sales comparison approach were of new or nearly new homes and were similar to the subject in house style, room count, bedroom and bathroom count, and the gross living area (GLA) did not differ by more than 500 square feet from the size of the subject home. They were also similar in lot size, with the exception of two of defendant s sales where the lot size varied by three to four thousand square feet, but the remainder were quite comparable in size to the subject property. There was however a wide divergence in the price range of the experts comparable sales. Pre-adjustment sales of plaintiff s expert ranged from a low of $850,00 to a high of $989,000 for new or nearly new homes. The price range was $1,135,000 to $1,400,000 for the homes considered comparable by defendant s expert. Each expert adjusted the comparable sales prices for characteristics that differed from the subject. On those occasions the sales price of the comparable property was adjusted downward to reflect conditions at the comparable property superior to the subject and, in turn, the comparable properties were adjusted upward to reflect conditions considered inferior to the subject, which is proper when utilizing the sales comparison approach.

The following findings of fact are based on testimony and evidence adduced at trial. The subject property lot size, according to the defendant, is 13,182 square feet, arrived at by multiplying the recorded dimensions of 115 x 114.63 . Plaintiff suggests the lot size is 12,824 square feet, but does not indicate how he arrived at that number. The court accepts defendant s determination of lot size based on the measurements provided. The lot is zoned R-100.3 The neighborhood of the subject property is mostly made up of single-family dwellings. Located in the vicinity of several major highways, including Route 17 and the Garden State Parkway ( Parkway ), the neighborhood experiences heavy traffic. (Both experts heard traffic noise from the Parkway while standing on the subject property.) There are also a number of nearby commercial centers, including the Paramus Park Mall which is within walking distance of the subject.

The subject property is improved with a colonial home built by the owner between 2005 and 2006,in overall good condition. There are nine rooms among 4,092 square feet of gross living area (GLA) with five bedrooms and four bathrooms. The basement is unfinished. The experts agree the home is of high quality construction with all brick siding, a two-car built in garage, an all brick rear covered porch, and a circular paver driveway. A wide brick stairway leads to the front door. Once inside, a two-story entry with marble tile floors reveals a semi-circular open stairway leading to the second floor, as depicted in defendant s photographs of the subject home. Hardwood, tile and marble flooring predominate throughout. The first floor contains living room/dining room, two-story family room and a bedroom with a double closet all with hardwood flooring. The kitchen is equipped with an island, granite countertops, five burner countertop range, double wall oven, marble tile floors. A full bath with stall shower, marble-topped vanity sink, ceramic tile floor and walls completes the first floor.

The second floor contains a total of four bedrooms all with hardwood floors, each with large single or walk-in closets. There are three full bathrooms. The master bedroom has a walk-in closet, linen closet, and two double closets, and a master bath with tiled floor and walls, a Jacuzzi tub, double marble vanity, toilet and bidet, and a large steam shower. The two additional full bathrooms contain tile floors and walls, double or single marble-topped vanity sinks, and a second Jacuzzi tub. Photographs depict a well landscaped and well maintained property.

Plaintiff s comparable sales approach

Plaintiff s expert selected eight Paramus properties all of which had been listed on the Multiple Listing Service (MLS). The expert testified that he had contacted a broker related to each sale to confirm the sale. None of the comparable properties were located in the same neighborhood as the subject. Only the exterior of the comparable homes were inspected by the expert. He did not examine any property record cards, but instead relied on information obtained through brokers, tax records and from his own observations.

The expert applied a downward 10% adjustment to several of the comparable sales due to their location in neighborhoods quieter than the subject. A 10% downward adjustment was also applied to the comparable new homes for age/condition. In the expert s opinion new houses typically sell for more than even a two to three year old house, since builders provide new home buyers with the option to select the interior finishes (colors, cabinetry and counters) where the buyer of an existing home would incur cost to change amenities and d cor to accommodate the buyer s taste, which results in increased value to the new home. An adjustment for market conditions was also applied to some sales used for the 2010 tax year, the expert having concluded that the residential market declined 5% between December 2008 and October 1, 2009. No market adjustment was made for those sales relied on for the 2011 tax year since the expert found that the market had stabilized. Other minor adjustments were made for amenities such a finished basement, pool and patio/deck. In reaching his final conclusion of value, plaintiff s expert placed equal weight on all of the comparable sales for both years.

Tax year 2010 (10/1/09 valuation date)

Comparable 1, 335 Bullard Avenue, was sold by a broker on December 12, 2008 for $945,000 after 23 days on the market. The lot size is 10,729 square feet. The improvement, two years old in good condition at the time of sale, contains 3,880 square feet of GLA, nine rooms, five bedrooms, three bathrooms, a two-car garage and an unfinished basement.

Sold ten months before the subject valuation date, it was adjusted downward 5% (-$47,250) for changing market conditions; 10% (-$89,775) for location, and gross and net adjustments total $137,025, or 14.50% of the sales price. The final adjusted sales price is $807,975.

On cross-examination, the expert was questioned about the property record card which listed the sale as non-useable, although there was no indication of a non-useable code, classification or other description. According to plaintiff s expert, while he had not examined the property record card he was unaware of any reason for the sale to be non-useable. He had spoken with the listing real estate agent about the property and based on his investigation found that the sale was useable for sales comparison purposes, which the court accepts.

Comparable 2, 330 North Fairview Avenue, sold on September 23, 2009 for $960,000. The lot size is 12,712 square feet. The improvement, new at the time of sale, contains 3,908 square feet of GLA, nine rooms, five bedrooms, three and one half bathrooms, a two-car garage, a built-in pool, and a finished basement.

Adjusted downward 10% (-$96,000) for condition/age; 5% (-$48,000) finished basement; and 2.5% (-$24,000) for a pool, gross and net adjustments total $168,000, or 17.50% of the sales price. The final adjusted sale price is $792,000.

Comparable 3, 193 Kaywin Roadsold on September 25, 2009 for $850,000. The lot size is 9,557 square feet. New at the time of sale, the improvement contains 3,376 square feet of GLA, nine rooms, five bedrooms, four bathrooms, a two-car garage and an unfinished basement.

Adjusted downward 10% (-$85,000) for location; 10% (-$85,000) for condition/age; upward 10% ($85,000) for room count/size, gross adjustments total $255,000, or 30% of the sales price. The final adjusted sale price is $765,000.

In a challenge to the sales price, defendant s expert testified that the price as reported above was not accurate; rather, MLS reported the price as $950,000, and $955,000 appeared on the property record card. However plaintiff s expert testified that to the contrary, he confirmed the $850,000 sales price with the broker and with data he obtained through a real estate service. Moreover, in his experience the sales prices reported by MLS are not always correct. He uses MLA as a guide only and looks to the real estate information service for property information which takes data directly from public records and he finds it more reliable than MLS.

Comparable 4, 217 Fredrick Street, on the market for 93 days, sold on December 16, 2008 for $985,000. The lot size is 10,001 square feet. The improvement contains 3,208 square feet of GLA, nine rooms, five bedrooms, four bathrooms, a two-car garage and a finished basement. The age of the home was not provided but the expert considered the house in good condition at the time of sale.4

Adjusted downward 5% (-$49,250) for time/market conditions; 10% (-$93,575) for location; and 5% (-$46,788) for a finished basement, and upward 10% ($93,575) for room count/size, gross adjustments total $283,188, or 28% of the sales price. The final adjusted sale price is $888,963.

Tax year 2011 (10/1/10 valuation date)

Comparable 5, 533 Forest Avenue, sold on July 19, 2010 for $900,000. The lot size is 14,580 square feet. New at the time of sale, the improvement contains 3,616 square feet of GLA, eight rooms, four bedrooms, three and one half bathrooms, a two-car garage and a finished basement.

Adjusted downward 10% (-$90,000) for age/condition, and 5% (-$45,000) for a finished basement, with an upward adjustment of 2.5% ($22,500) for room count/size, gross adjustments total $157,500, or 17.5% of the sales price. The final adjusted sale price is $787,500.

Comparable 6, 531 Forest Avenue (located next to comparable 5) sold on March 12, 2010 for $989,000. The lot size is 14,580 square feet. New at the time of sale, the improvement contains 4,320 square feet of GLA, eight rooms, four bedrooms, three and one half bathrooms, a two-car garage and a finished basement.

Adjusted downward 10% (-$98,900) for age/condition; 2.5% (-$24,725) for room count/size; and 5% (-$49,450) for a finished basement, gross adjustments total $173,075, or 17.50% of the sale price. The final adjusted sales price is $815,925.

Comparable 7, 268 Gorden Drive, sold on September 25, 2009 for $900,000. The lot size is 8,904 square feet. New at the time of sale, the improvement contains 3,592 square feet of GLA, nine rooms, five bedrooms, four and one half bathrooms, a two-car garage and an unfinished basement.

Adjusted downward 10% (-$90,000) for location and 10% (-$90,000) for condition/age, with two upward adjustments 2.5% (22,500) for lot size and 5% ($45,000) for room count/size, gross adjustments total $247,500, or 27.50% of the sale price. The final adjusted sales price is $787,500.

Comparable 8, 353 South Terhune Avenue, sold on January 19, 2010 for $965,000. The lot size is 10,262 square feet. New at the time of sale, the improvement contains 3,852 square feet of GLA, nine rooms, five bedrooms, three and one half bathrooms, a two-car garage and an unfinished basement.

Adjusted downward 10% (-$96,500) for location, 10% (-$96,500) for age/condition and upward 2.5% ($24,125) for room count/size, gross adjustments total $217,125, or 22.50% of the sales price. The final adjusted sale price is $796,125.

When asked whether plaintiff s expert was aware that the property record card labeled this sale as non-usable, NU-7, the expert responded that he had not seen the card prior to trial. He also testified the designation does not relate to the validity of the sale, which the court accepts.

The value conclusion reached by plaintiff s expert under the sales comparison approach for October 1, 2009 is $810,000 and for October 1, 2010 is $800,000.

Defendant s sales comparison approach

Defendant sought an increase in the assessment based on numerous grounds, primarily due to the quality of the construction of the subject and its character as compared to comparable properties. Defendant expert compared the subject to a builder owned home. He testified about four properties, at or near the age of the subject, sold between August 2008 and December 2009 in valuing the subject for both tax years. All four were included in the analysis for tax year 2010 while only three were included for 2011, the fourth having been discarded from consideration at trial by defendant s expert himself as being too old to rely on for tax year 2011. None of the properties were located in the subject neighborhood. Each was located in an R-75 zone, unlike the subject R-100 zone. The record does not state whether the defendant s expert inspected the interior of any of the comparable properties and there was no description of the homes interiors. Moreover, the record is void of how long the property was marketed or whether the sales were the result of arms-length transactions.5

The expert made adjustments for location, GLA, basement and deck/porch. As to location, where the comparable property was located on an inner, quiet, residential street, a 5% location adjustment was applied. In the expert s opinion there is a high demand for property in Paramus given that there is little vacant land. Therefore while the larger 10% adjustment used by plaintiff may be appropriate elsewhere, it is not warranted in Paramus where the high demand for property results in buyers more willing to purchase property along the busier streets in his opinion. There was no adjustment for time and changing market conditions for comparables that were sold several months before the subject s valuation date because the expert found no significant change in market conditions in Paramus between October 2008 and October 2010. Any change in market conditions occurred before the end of 2008 and had leveled off prior to the comparable sale dates, in his opinion. Additionally, he did not rely on the properties used by plaintiff s expert because he believed there were substantial differences that disqualified them as comparables.

Comparable 1, 152 Stuart Street, located 1.4 miles from the subject, sold on August 6, 2008 for $1,135,000, was selected as a comparison to the 10/1/09 valuation date only. The lot size is 11,422 square feet. Constructed in 2007, the expert described the improvement as new condition at the time of sale, with GLA of 3,616 square feet, eight rooms, five bedrooms, three and one half bathrooms, a two-car attached garage, fireplace, central air conditioning, patio, porch, and a full partially finished basement.

Adjusted downward -$57,000 for location, -$7,000 for a deck and -$31,000 for the basement, and upward $66,600 for GLA, gross adjustments total $161,600 or 14.2%. The final adjusted sale price is $1,106,600.

Plaintiff challenged the age of the sale. Defendant s expert justified use of the sale on the basis that sales were lacking, and contended it was not too old for the first valuation date.

Comparable 2, 275 Henry Street (for both valuation dates), was sold on April 3, 2009 for $1,160,000. The lot size is 11,250 square feet. The improvement, constructed in 2007 and in good condition at the time of sale, contains 3,660 square feet of GLA, eight rooms, four bedrooms, three and one half bathrooms, a two-car garage, central air-conditioning, full unfinished basement, porch and fireplace.

Adjusted downward -$58,000 for location, and upward $60,500 for GLA, gross adjustments total $118,500 or 10.1%, with a final adjusted sale price of $1,162,500.

Comparable 3, 210 Van Buren Drive (for both valuation years), sold on August 13, 2009 for $1,155,000. The lot size is 15,682 square feet, located on the opposite side of Route 17 from the subject. The improvement was built in 2003, in good condition at the time of sale, and contains 3,626 square feet of GLA, nine rooms, four bedrooms, three and one half bathrooms, two-car attached garage, fireplace, central air conditioning, and a full finished basement.

Adjusted downward -$57,750 for location and -$33,000 for condition of the basement, and upward $65,200 for GLA and $7,000 for no porch, gross adjustments total $162,950, or 14.1% of the sales price, with a final adjusted sale price of $1,136,450.

Comparable 4, 214 Bennington Terrace (10/1/10 valuation date only), located about 4.4 miles from the subject and on the opposite side of Route 17, sold on December 1, 2009 for $1,400,000. The lot size is 16,553 square feet. The improvement, constructed in 2000 and in good condition at the time of sale, contains 4,604 square feet of GLA, ten rooms, four bedrooms, four and one half bathrooms, a two-car attached garage, a fireplace, central air conditioning, a deck, a pool, and a full partially finished basement.

Adjusted downward -$70,000 for location; -$71,700 for GLA; -$10,100 for a bathroom; -$16,600 for a pool and -$40,100 for condition of the basement, gross and net adjustments total $208,500 or 14.8% of the sales price with a final adjusted sale price of $1,191,500.

The value conclusion reached by defendant s expert under the sales comparison approach for October 1, 2009 is $1,125,000 and for October 1, 2010 is $1,150,000.

Defendant s cost approach

Of the comparable sales selected, again none of them were located in the subject neighborhood and all of the properties were zoned R-75. There was no indication of the marketing period or other circumstances of sale of any property.6 For each, the improvement previously on site had been demolished and a single-family home had been built. The expert opined that a 5% location adjustment was appropriate based on his review of million dollar homes in the Borough built on both busy streets as well as on less traveled roadways, given the shortage of vacant land.

Comparable 1, 512 Albradt Street (both valuation dates), sold on August 29, 2007 for $550,000. The lot size is 15,769 square feet. Adding buyer s demolition cost of $10,000 to the purchase price results in a value of $560,000 per buildable lot. Adjusted downward 5% for location, or 5.26% of the sales price, the final adjusted value is $532,000.

Comparable 2, 50 Hemlock Drive (both valuation dates), sold on June 11, 2008 for $440,000. The lot size is 9,375 square feet. Adding buyer s demolition cost of $9,000 to the purchase price results in a value of $449,000 per buildable lot. Adjusted downward 5% for location (-$22,450), or 5.26% of the sales price, the adjusted value of the land is $426,550.

Comparable 3, 236 Hillside Avenue (both valuation dates), sold on July 9, 2008 for $385,000. The lot size is 10,898 square feet. Adding buyer s demolition cost of $10,000 to the purchase price results in a value of $395,000 per buildable lot. Adjusted downward 5% for location (-$19,750), or 5.26% of the sales price, the adjusted value of the land is $375.250.

Comparable 4, 349 Harrison Street (both valuation dates), sold on June 25, 2010 for $345,000. The lot size is 10,823 square feet. Adding buyer s demolition cost of $5,000 to the purchase price results in a value of $350,000 per buildable lot. Adjusted downward 5% for location (-$17,500), or 5.26% of the sales price, the final adjusted value of the land is $332,500.

The expert concluded a price per lot of $444,600 as of 10/1/09, and $416,575 as of 10/1/10, and reached a market value of $450,000 per buildable lot for both years.

For the 10/1/09 valuation date, the expert found the cost of improvement as $721,179 in reliance on Marshall & Swift ( M&S ) data. He used the following costs: basement, $64,732; garage, $29,160; other site improvements, $56,180 and arrived at a total replacement cost-new of $871,251. He added 10% entrepreneurial profit ($87,125) for a total building cost of $958,376. He determined that no depreciation should be applied because the improvements were of very high quality and well maintained so none was justified. Added to the land cost of $450,000, the total cost of the property was rounded to $1,410,000.

For the 10/1/10 valuation date, the expert found the cost of the improvement was $755,542. The costs were: basement, $67,817; garage, $30,551; and $56,480 for other site improvements and arrived at a total replacement cost-new of $910,390. He added 10% entrepreneurial profit of $91,039 for a total building cost of $1,001,429, and again determined that no depreciation should be applied for the reasons stated. Added to the land cost of $450,000, he arrived at a total cost of $1,450,000 for the property, as rounded.

Plaintiff challenged the opinion of the expert because he did not conduct his own research, but relied instead on M&S. According to plaintiff that was the equivalent of relying on a third party opinion. The expert defended the use of M&S, and the accuracy of the service s methodology and analysis, since the research is conducted by region with costs by location, and yields fact data rather opinion. The court rejects plaintiff s challenge to the use of M&S, and finds the expert relied on data supplied by the service, rather than opinion.

Plaintiff also challenged the application of entrepreneurial profit on an owner built improvement. The court does not find merit to plaintiff s challenge that entrepreneurial profit is inappropriate to a cost approach applied to an owner constructed home, the theory having been rejected by the courts. New Jersey courts do not consider the status of the builder (as developer or owner-operator) dispositive to the determination of whether to include entrepreneurial profit within market value based on the principle of uniformity. Westwood Lanes, Inc. v. Borough of Garwood, 24 N.J. Tax 239, 250 (2008) (citation omitted).

Defendant s expert arrived at a value of $1,410,000 for 2009 and $1,450,000 for 2010 under the cost approach. He reconciled the sales and cost approach values and concluded that the proper value for both years was $1,200,000.

Conclusions of Law

The court s analysis begins with the well-established principle that [o]riginal assessments and judgments of county boards of taxation are entitled to a presumption of validity. MSGW Real Estate Fund, L.L.C. v. Borough of Mountain Lakes, 18 N.J. Tax 364, 373 (Tax 1998). As Judge Kuskin explained, our Supreme Court has defined the parameters of the presumption as follows:

The presumption attaches to the quantum of the tax assessment. Based on this presumption the appealing taxpayer has the burden of proving that the assessment is erroneous. The presumption in favor of the taxing authority can be rebutted only by cogent evidence, a proposition that has long been settled. The strength of the presumption is exemplified by the nature of the evidence that is required to overcome it. That evidence must be definite, positive and certain in quality and quantity to overcome the presumption.

 

[Ibid. (quoting Pantasote Co. v. City of Passaic, 100 N.J. 408, 413 (1985).]

 

The presumption of correctness arises from the view that in tax matters it is to be presumed that governmental authority has been exercised correctly and in accordance with law. Pantasote, supra, 100 N.J. at 413 (citing Powder Mill, I Assocs. v. Township of Hamilton, 3 N.J. Tax 439 (Tax 1981), rev d, 190 N.J. Super 63 (App. Div. 1981)); see also Township of Byram v. Western World, Inc., 111 N.J. 222 (1988). The presumption remains in place even if the municipality utilized a flawed valuation methodology, so long as the quantum of the assessment is not so far removed from the true value of the property or the method of assessment itself is so patently defective as to justify removal of the presumption of validity. Transcontinental Gas Pipe Line Corp. v. Township of Bernards, 111 N.J. 507, 517 (1988) (citation omitted).

In the absence of a R. 4:37-2(b) motion . . . the presumption of validity remains in the case through the close of all proofs. MSGW Real Estate Fund, LLC, supra, 18 N.J. Tax at 377 (citations omitted). In making the determination of whether the presumption has been overcome, the court should weigh and analyze the evidence as if a motion for judgment at the close of all the evidence had been made pursuant to R. 4:40-1 (whether or not the defendant or plaintiff actually so moves), employing the evidentiary standard applicable to such a motion. Ibid. The court must accept as true the proofs of the party challenging the assessment and accord that party all legitimate favorable inferences from that evidence. Id. at 376 (citing Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 535 (1995)).

In order to overcome the presumption, the evidence must be sufficient to determine the value of the property under appeal, thereby establishing the existence of a debatable question as to the correctness of the assessment. West Colonial Enters., L.L.C. v. City of East Orange, 20 N.J. Tax 576, 579 (Tax 2003) aff d, 21 N.J. Tax 590 (App. Div. 2004) (citations omitted). Only after the presumption is overcome with sufficient evidence at the close of trial must the court appraise the testimony, make a determination of true value and fix the assessment. Rodwood Gardens, Inc. v. City of Summit, 188 N.J. Super 34, 38 (App. Div. 1982) (citations omitted). If the court determines that sufficient evidence to overcome the presumption has not been produced, the assessment shall be affirmed and the court need not proceed to making an independent determination of value. Ford Motor Co. v. Township of Edison, 127 N.J. 290, 312 (1992); see also Global Terminal & Container Serv. v. City of Jersey City, 15 N.J. Tax 698, 703-704 (App. Div. 1996).

At the close of the trial defendant moved for judgment on the proofs dismissing plaintiff s case for failure to overcome the presumption of validity that attaches to the assessments, pursuant to R. 4:40-1, on which the court reserved. The court finds that plaintiff has produced sufficient evidence to overcome the presumption of validity attached to the assessment as to both tax years. Plaintiff produced expert testimony regarding comparable properties located in Paramus for both tax years which sold for amounts significantly less than the equalized value of the subject home on the relevant valuation dates. Plaintiff has raised a debatable question as to whether the assessment on the subject property accurately reflects its true market value on October 1, 2009 since the 2010 assessment reflects an equalized value of $1,286,142 ($1,116,500 / .8681= $1,286,142), and the 2011 assessment reflects an equalized value of $1,201,830 ($1,116,500 / .9290 = $1,201,830), and plaintiff s expert having concluded values to be $810,000, and $800,000, as of the respective valuation dates.

Having determined that plaintiff has overcome the presumption, the court must turn to a consideration of the evidence adduced on behalf of both parties and conclude the matter based on a fair preponderance of the evidence. Ford Motor Co., supra, 127 N.J. at 312 (citations omitted). Our Supreme Court has held that although there may have been evidence to overcome the presumption of correctness at the close of plaintiff s case-in chief, the burden of proof remain[s] on the taxpayer throughout the entire case to demonstrate that the judgment under review was incorrect. MSGW Real Estate Fund, supra, 18 N.J. Tax at 374 (citations omitted). Accordingly, the court now must weigh and evaluate all the evidence and determine whether either party has established, by a preponderance of the evidence that the true value of the subject property as of the applicable assessment dates was such as to warrant adjustments in the assessments. Id.

The sales comparison approach is an appropriate method of estimating value for a residence. Brown v. Borough of Glen Rock, 19 N.J. Tax 366, 377 (App. Div.), certif. denied, 168 N.J. 291 (2001). The value is derived by comparing similar properties that have recently sold, identifying appropriate units of comparison, and making adjustments to the sales price of the comparable properties based on relevant, market-derived elements of comparison. Appraisal Institute, The Appraisal of Real Estate, 301-02 (13th ed. 2008). The court finds that the approach is appropriate in this case. The law is well settled that in order to perform a proper sales comparison approach there must be substantial similarity between the subject property and the comparable property. Venino v. Borough of Carlstadt, 1 N.J. Tax 172, 175 (Tax 1980), aff d o.b., 4 N.J. Tax 528 (App. Div. 1981). See also, The Appraisal of Real Estate, supra, at 301 (comparable properties should be sought in a competitive market by considering characteristics such as property type, date of sale, size, physical condition, location and land use constraints since the goal is to find a set of comparable sales as similar as possible to the subject property to ensure they reflect the actions of similar buyers ).

Initially, in considering plaintiff s sales comparison approach to value, the court finds it significant that plaintiff s expert did not inspect the interior of the comparable homes but examined the exteriors only and on that basis concluded the properties were sufficiently comparable to the subject. His exterior inspection revealed that the homes were in good condition . Other than the age and house style, a room count and the existence of a pool or other outside amenity (ie. deck/patio) there was no description of the improvement. Moreover, no testimony about the description of the building materials to indicate the construction or the finish, i.e. brick, wood shingle, aluminum, vinyl siding was provided, and there were no photographs of the improvement, at trial or in the report, for the court s comparison. In addition, the expert testified that the subject home was of very high quality construction and typical of the kind of amenities found in Paramus newly built homes. However, apart from his experience appraising Paramus properties, the expert provided no basis for his opinion.

On cross-examination the expert testified that it is impossible to inspect the comparable homes since most homeowners would refuse entry for a home inspection. However, the expert made no attempt to do so and he made no other investigation into the interior condition through other available resources. In his opinion there was no need to inspect the interiors since the homes were new or nearly new and deficiencies in the improvements, if any, would be corrected prior to the closing. Absent a description of the comparable properties, or market support for the expert s conclusions, the court is unable to conclude that the interior condition of the comparable homes compare to the subject and thereby rejects the comparable sales since they are not reliable indicators of value.

The court also found the adjustments applied to the comparable sales to be problematic based on the magnitude of the adjustments, and, because the adjustments often lacked necessary market support. Total gross adjustment of 30%, 28%, 27.5% and 22.5% for comparable sales number 3,4,7 and 8, respectively, support a finding that the element of comparability is lacking. When a property requires an adjustment of that magnitude the sale does not provide a reliable measure of value. Adjustments that are too large suggest a lack of comparability between the concerned sales and the subject property and present a misleading indication of the subject property s value. 125 Monitor St. LLC, 21 N.J. Tax 232, 243 (Tax 2004), aff d, 23 N.J. Tax 9 (App. Div. 2005). Therefore, the court rejects comparable 3,4,7 and 8 given the magnitude of the adjustments.

Moreover, it is not acceptable for an expert to rely on experience and other subjective measures to arrive at the value of an adjustment. Greenblatt v. Township of Englewood, 26 N.J. Tax 41 (Tax 2012). Where adjustments are made they must be based on established appraisal principles. Real Property Appraisal Manual for New Jersey Assessors, I-115 3rd Ed. (2002) ( In order to properly compare the subject property with the similar properties which have sold, it is necessary to establish uniform standards for measurement of the differences. ) See also, Congoleum Corp. v. Township of Hamilton, 7 N.J. Tax 436, 451 (Tax 1985) (Adjustments must be adequately supported with objective data.); Greenblatt v. Englewood City, supra, 26 N.J. Tax at 55( adjustments must have a foundation obtained from the market with an explanation of the methodology and assumptions used in arriving at the [ ] adjustments [ ] otherwise they are entitled to little weight.) As to essentially all of the adjustments, the expert relied on his expertise rather than market based data. In some instances he suggested that he derived the value of adjustments by analyzing the comparable sales selected by him in this matter, yet he provided no analysis or explanation for how he arrived at the concluded adjustment. The flaws in the adjustment process affects the credibility of the adjustments, as discussed below.

Market Adjustment: Plaintiff s expert cited three factors relied on by him to determine the proper market adjustment. First, he reviewed data supplied by the MLS which compares price levels over distinct periods of time. Specifically, he examined the time period between December 2008 and October 2009. The data revealed how many houses were sold during a given time period, and the average sales price during that time. Other than the general description, the expert did not provide any details about the comparison, and, he acknowledged that there was no reference to the MLS study in his report or adjustment grid, and no studies or reports to support the market decline were included in or appended to his report. Testimony regarding the methodology of the MLS study was lacking, as for instance, how many sales were examined, or whether they were single or multi-family houses, the price range used for comparison, etc., thereby affecting reliability. Second, the expert s observation of the Paramus market served as a basis for the adjustment, however, no independent study of Paramus market conditions was conducted for this appraisal. Rather the expert relied generally on appraisals in Paramus conducted by him on a regular basis as to what is occurring in the market. Third, to the extent possible he would rely on a paired sales analysis, but provided no evidence of such an analysis. Given the lack of market based data, the adjustment is rejected by the court.

Age/condition: The court rejects the age/condition adjustment as well, both because of a lack of market support, and because the testimony failed to support the adjustment. The 10% adjustment as applied to the comparable sales prices resulted in dollar amounts ranging from $96,000 to $98,900, however, the expert acknowledged that those values might not represent the buyer s cost to update the home. Moreover, support for the adjustment based on age/condition was contradicted by the expert s previous opinion that all new homes in Paramus typically contain the same amenities, such as cabinets and countertops. The two comparable homes adjusted for condition were nearly new, built only two or three years before the subject so seemingly would fall within the expert s description of what a buyer could expect to find in a new home. In which case the amenities would likely appeal to a buyer even though the home was not just built and with no difference between the comparable and a new home no adjustment would be warranted. Moreover, the comparable sales utilized by the expert for tax year 2010 belie his concluded adjustment. In comparing sales 3 and 4, the improvements are nearly the same GLA and lot size, and they are adjusted in an identical manner except for a finished basement. Nonetheless, sale 3, the new home sold for $850,000 and sale 4, two years old, sold for $985,000, thereby the court rejects the adjustment.

Room count/size: Plaintiff s methodology utilized to adjust for room count/size was criticized by defendant as lacking any market study to corroborate the various percentage adjustments applied. The expert explained that he based the percentage adjustment on an approximate value of $75 per square foot for a house of the subject s type. The dollar amount resulting from the percentage adjustment as applied to each comparable sale was calculated by the court and arranged in the charts below.

Subject GLA 4,092

 

Room Count

GLA

Difference in GLA

Adjustment

Dollar per Square Footage

Comparable 1

9/5/3

3,880

212

0

Comparable 2

9/5/3

3,908

184

0

Comparable 3

9/5/3.5

3,376

716

10%

$118.71

Comparable 4

9/5/4

3,208

884

10%

$105.85

Room Count

GLA

Difference in

GLA

Adjustment

Dollar per Square Footage

Comparable 5

8/4/3.5

3,616

486

2.5%

$46.29

Comparable 6

8/4/3.5

4,320

228

2.5%

$108.66

Comparable 7

9/5/4.5

3,592

500

5%

$90.00

Comparable 8

9/5/3.5

3,852

240

2.5%

$100.05

Contrary to the expert s testimony, the dollar adjustment ranges from $46.29 to $118.71 per square foot (with $90 per square foot being the closest to the expert s $75 per square foot approximation) and the discrepancy is not explained. His opinion of value is not reflected in any of the applied adjustments. Similarly, the expert provides no basis or criteria for his decision to adjust, as illustrated by comparable 6 (228 square foot difference from subject, adjusted 2.5%) and comparable 1 (212 square foot difference, with no adjustment to the sales price). No explanation as to why or when the market would recognize a value difference was provided. Accordingly, the court rejects the adjustment.

Location: The magnitude of the location adjustment was also subject to challenge by defendant given that the expert brought to bear no report or data to support a downward 10% adjustment because of location on a busy street. According to the expert, in his experience a property on a quiet street is more valuable than a busy street, and he derived the magnitude of the adjustment from a review of the comparable sales in his report. The court finds that the adjustment lacks market support, and as well, a review of the comparable sales fails to support the adjustment. For example, as to the properties relied on for the 2010 tax year, the home on the busy street sold for $960,000 while those on quiet streets, sold for $850,000, $945,000 and $985,000. Examination of particular sales better explain the point. Sale 2 (busy) and sale 3 (quiet) had nearly identical gross adjustments. Contrary to the expert s opinion, sale 2 sold for $110,000 more than sale 3. The sales relied on for tax year 2011 yield the same conclusion. The busy location, comparable sale 2 sold for $89,000 more than the quiet location, sale 3, (where the gross adjustments were nearly equal.) As a result, the court rejects the adjustment.

Lot size and Basement- Plaintiff s expert only adjusted one of the eight properties for lot size, and utilized 2.5% of the sales price as the adjustment value. The expert did not adjust where the comparable lot varied in size by 2,000 to 3,000 square feet from the subject property because in his opinion the market would not factor that difference into the price. However, there was no market basis provided for his opinion. According to the expert he attempted to determine the appropriate adjustment from the reported comparable sales, but provided no testimony about such an analysis. Rather, he relied on his general appraisal experience for a view to what is occurring in the market and what different characteristics of property are worth and noted that appraising is not a science; it s an art. The court rejects the adjustment made for the basement as well based on the testimony of the expert who acknowledged that he did not undertake any market studies to arrive at the adjustment. He did not examine any of the property record cards nor did he cross check the adjustment against a cost calculator, such as M&S since in his opinion the market would not have access to that data. Rather, he relied on his thirty years of experience having seen many homes with finished basements. For all of the stated reasons, the court rejects plaintiff s conclusions of value.

Regarding the testimony by defendant s expert, the court does not find that the sales selected provide reliable proof of the subject s value. Initially, defendant s expert lacked familiarity with the comparable properties. There was no evidence of the properties interior amenities or condition. Accordingly, the court was unable to find sufficient similarity between the subject and the comparable properties. In fact, the zoning of the subject was different from that of the comparable properties. Despite the subject property s R-100 zone, the expert relied on sales in the R-75 zone for both the sales comparison and the cost approach. He acknowledged that property zoned R-100 has a higher value than property zoned R-75 since it allows construction of a larger home. The R-100 zone would therefore command a higher sales price in his opinion. He further testified that because the R-75 designation is more restrictive than an R-100 designation any adjustment would have resulted in a higher reflected sale price for each comparable. Despite acknowledging the value disparity, the expert did not adjust any of the comparables to reflect the difference.7 When challenged on the lack of adjustment, on cross-examination he explained that in Paramus large houses are constructed in both zones ( buyers in Paramus build large homes on very small lots ), which suggests that the value of the properties is not affected by the difference in zoning designation, contrary to the prior testimony of the expert. Accordingly, the court rejects defendant s value conclusion reached by the sales comparison approach as unsupported by the credible evidence.

As to defendant s cost approach, the methodology used disregarded consideration for depreciation, and was thereby flawed. The cost approach is an appropriate method to apply to value a structure that is newly built or nearly new where the appraiser estimates the market s perception of the difference between the property improvements being appraised and a newly constructed building with optimal utility . . . and estimates the cost to construct the existing structure and site improvements (including direct costs, indirect costs, and an appropriate entrepreneurial profit or incentive) . . . . The Appraisal of Real Estate, supra, 378. Following that analysis the appraiser deducts all depreciation in the property improvements from the cost of the new structure as of the effective appraisal date. Id. Estimating depreciation requires consideration of all elements of depreciation, including physical, functional and external. Id. at 379. Based on the undisputed facts the subject improvement was built at least three, if not four years prior to the first valuation date (October 1, 2009).

Defendant s expert testified that the home was of very high quality construction. It was apparent by its very appearance that it was built by the owner. He found that the quality of the improvement was like-new and, in fact, on examining the roof determined it was in new condition . On that basis he elected not to apply depreciation. As noted, an appraiser must consider and determine property value after analysis of all three forms of depreciation, physical, functional and external. The sum of all these components is total depreciation. The market recognizes the occurrence of depreciation and the appraiser interprets how the market perceives the effect of depreciation. Id. at 392. The good physical condition of the improvement, even if like-new, did not relieve the appraiser of the requirement to consider and apply all forms of depreciation where appropriate. Further, despite the quality and condition of the improvement observed by defendant s expert, [t]heoretically, depreciation can begin in the design phase or the moment construction is started, even in a functional building that represents the highest and best use of a site. Improvements are rarely built under ideal circumstances . . . physical depreciation tends to persist throughout the life of the improvements. Id. Moreover, there was no discussion of whether the expert considered the other forms of depreciation before wholly rejecting the application of depreciation to the improvement, therefore the court does not find that the cost approach utilized by the expert is reliable and rejects the value conclusion.8

The court concludes that neither party has proven by a preponderance of the evidence that relief is warranted. While the court is mindful of its obligation to apply its expertise in reviewing the evidence to arrive at the value of the subject, Ford Motor Company v. Township of Edison, 127 N.J. 290, (1991), the court is unable to do so based on a record void of competent evidence from which that value can be ascertained.

The Clerk of the Tax Court is directed to enter judgment affirming the assessments.

Very truly yours,

Christine Nugent, J.T.C.

1 The witness has been employed with an appraisal firm for five years where 90% of his work appraising properties has involved tax appeals, and he works under the supervision of a certified appraiser who co-signed the report prepared in this matter. In the process of becoming an apprentice appraiser, a change in the law delayed his designation. He presently has the credentials to become an apprentice appraiser. In addition to the report for this matter, he has appraised and written reports for 100 other Paramus properties (80% of which are residential properties) nearly all of which involved tax appeals. As part of his overall experience he has conducted a few thousand appraisals on which has written reports. The witness has testified in Tax Court on three occasions and was qualified as a witness in this court in a prior Paramus residential tax appeal trial. He has also testified before the county board of taxation. Of the 300 educational credits required to obtain a certified appraisal designation he has completed 75, which is sufficient to warrant a designation as an apprentice. He is a member of the Appraisal Institute and a Certified Tax Assessor. Pursuant to the New Jersey Rules of Evidence, a witness may qualify as an expert based on knowledge, skill, experience, training, or education. N.J.R.E. 702. The court s decision was based on the following: the witness familiarity with appraising residential properties in Paramus, the volume of appraisal work conducted by him, the fact that he has trained for five years with a certified appraiser appraising properties, the fact that he has testified as an expert in Tax Court on several occasions and at county boards, and based on the educational requirements fulfilled by him.

2 The cost approach is not appropriate in valuing the subject according to plaintiff s expert since a buyer in the market for an existing home would find the cost to construct a new home irrelevant, and similarly would not consult a cost service like Marshall and Swift to determine the appropriate purchase price.

3 The zone allows a maximum building height of 32 feet and a maximum lot coverage of 25%. The zoning minimums require that there must be a front yard of 35 feet, a rear yard of 30 feet, and side yards of at least eight feet and the sum being 25 feet.

4 Since the expert adjusted all of the new homes by 10%, and there was no such adjustment made, the court concludes that comparable 4 was not a newly built home at the time of the sale.

5 The only information provided by the expert was the name of grantor and grantee for each property.

6 The only information provided by the expert was the name of grantor and grantee for each property.

7 The value difference also creates doubt whether the properties are similar in highest and best use, given the difference in the maximal productivity of the properties based on the distinct zones.

8 Plaintiff also challenged the age of defendant s expert s comparable sales (cost approach) as being too remote in time. (Four sales dated 8/29/07, 6/11/08, 7/9/08 and 6/25/10 were used for both tax years.) The challenge was partly based on the expert s testimony regarding an older sale that appeared in his report for the comparable sales approach, but which he excluded at trial, as being too remote in time for use regarding the 10/1/10 valuation date. ( The sale date was 8/6/08). In response, defendant s expert justified use of the above 4 sales for the cost approach, despite the sale dates, because of a lack of comparable sales in the Borough. Given that the court rejects the cost approach on the basis of flawed methodology, the court does will not reach the issue of the remoteness of the sales.

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