Mark J. Eodice v. Borough of Manville

NOT FOR PUBLICATION WITHOUT APPROVAL OF

THE TAX COURT COMMITTEE ON OPINIONS

TAX COURT OF NEW JERSEY

Mala Sundar R.J. Hughes Justice Complex

JUDGE P.O. Box 975

25 Market Street

Trenton, New Jersey 08625

Telephone (609) 943-4761

TeleFax: (609) 984-0805

taxcourttrenton2@judiciary.state.nj.us

November 14, 2014

BY ELECTRONIC MAIL

Thomas J. Cafferty, Esq.

Gibbons, P.C.

One Gateway Center

Newark, New Jersey 07102

Martin Allen, Esq.

DiFrancesco, Bateman et al., P.C.

15 Mountain Boulevard

Warren, New Jersey 07059

Re: Mark J. Eodice v. Borough of Manville

Block 144, Lot 28 ( 210 South 8th Avenue)

Docket No. 014943-2013

Dear Counsel

This letter constitutes the court s decision following trial. Plaintiff, as owner of the above referenced property ( Subject ), appealed the Somerset County Board of Taxation s judgment which had affirmed the local property tax assessment imposed on the Subject for tax year 2013. The contested assessment is as follows

Land: $ 148,200

Improvements: $ 131,900

Total: $ 280,100

The Chapter 123 ratio was 117.71% with the lower limit of 100.05% and upper limit of 135.37%.

A bench trial was held.1 Plaintiff s expert (accepted as such by the court without objection from the Borough) opined the Subject s value as $230,000 based on a comparable sales approach, utilizing four (4) comparable sales of multi-family residential properties located within the Borough.

At the end of plaintiff s case-in-chief, the Borough moved to dismiss the complaint under R. 4:37-2(b) on grounds plaintiff failed to overcome the presumptive correctness of the assessment. The court denied the motion because plaintiff s expert used an accepted appraisal methodology and chose multi-family dwellings located in the Borough as comparables, thus, his report and opinion provided a sufficient basis (when viewed through rose colored glasses ) to overcome the initial presumption of the assessment s validity. See MSGW Real Estate Fund, L.L.C. v. Borough of Mountain Lakes, 18 N.J. Tax 364, 376 (Tax 1998) (in evaluating whether plaintiff s evidence meets the cogent evidence standard for purposes of R. 4:37-2(b), the court must accept such evidence as true and accord the plaintiff all legitimate inferences which can be deduced from the evidence ).

For the reasons stated below, the court reduces the assessment to $240,000 based upon two of the four comparable sales (the other two being unverified estate/trust sales) and credible adjustments for differences in gross building area and certain physical amenities.

FACTS

The Subject is site measuring 20'x100' (or 2,000 square feet ( SF )). It is improved by a 76 + year old two-storied building. Located in a quiet residential neighborhood, it is legally conforming to the R2 zone (multi-family residential). The surrounding neighborhood is made up of a mix of single and multi-family residences, with a strong demand for multi-family unit rentals. The Subject is proximate to shopping centers, recreational areas and local schools.

Plaintiff s expert report and testimony was that the Subject was not identified as a Special Flood Hazard Area on the Federal Emergency Management Agency ( FEMA ) plan per the 2007 map, and lies in Zone X.2

The building comprises of two residential rental units, both tenanted as of the valuation date and not rent-controlled. One rental unit has five rooms with two bedrooms and one full-bathroom. The other has four rooms with two bedrooms and a full bath. The total gross building area ( GBA ) is 1,838 SF. Individual window units provide air-conditioning. The partial basement is unfinished. Parking is on the driveway. Per the expert s report, there is a fence in the rear. The expert opined the building to be in good-to-average condition based on his physical inspection.

VALUATION

Under his market approach, plaintiff s expert chose sales of multi-family homes located in the Borough, which sold within a one-year time frame of the valuation date of October 1, 2012. His data source was the information from the Multiple Listing Services ( MLS ) and the assessor s records (which he stated was also reflected in the Monmouth County Board of Taxation s website).3

Comparable Sale One was located 0.67 miles from the Subject at 310, North 7th Street. It sold on October 26, 2011 for $270,000. A colonial-style two-family home on a 7, 500 SF site with 1,910 SF of GBA and a two-car detached garage, each of the two units had two bedrooms and a full bath. He was unaware that the seller was a real estate broker even though that information was reflected on the MLS, and whether or not the seller as the broker received commission from the sale proceeds. The MLS also showed the comparable to be vacant.

Comparable Sale Two was located 0.13 miles from the Subject at 138, South 6th Avenue. It sold October 29, 2011 for $270,000. A two-family home on an 8, 000 SF site with 2,516 SF of GBA, each of the two units had three bedrooms, a full bath, and central air. The expert was unsure whether the comparable was of cape-style because he did not inspect the interior. He was unaware that the seller was from Florida, and was the executor of the estate of the home owner. He claimed he would have used the sale as a comparable even if it was an estate sale because of the paucity of two-family sales in the Borough during the one year prior to the valuation date.

Comparable Sale Three was located 0.40 miles from the Subject at 710 Kennedy Blvd., a busier street than the Subject s. It sold April 3, 2012 for $260,000. A ranch-style two-family home on a 7, 500 SF site with 1,998 SF of GBA and a one-car garage, each of the two units had two bedrooms, a full bath, and central air. The expert was unaware that the sellers were from Florida, and were co-trustees of a Family Trust. He was also unaware that the buyers were the same as those in Comparable Two.

Comparable Sale Four was located 0.21 miles from the Subject at 155 South 13th Avenue. It sold January 31, 2012 for $187,000. A colonial-style two-family home on a 4, 000 SF site with 1,548 SF of GBA and a two-car garage, one of the two units had one bedroom and a full bath, while the other had two bedrooms and one full bath.

The expert made uniform adjustments for site size (at $1 per SF); GBA (at $50 per SF); garage; ($5,000 per garage); and central air ($3,000). Consequently, the adjusted sale prices were $250,900; $227,100; $238,500 and $189,500. He concluded the value of the Subject as $230,000 under the market approach.

He also applied the cost approach for a value conclusion of $230,700. He used the replacement new method with (per his report) costs obtained from local area builders and published builders cost manuals. He used $80 per SF for the dwelling area and 50% of that for the basement area of 720 SF, depreciated the same by 50% ($35,168) for a depreciated cost of $140,672. To this he added $10,000 for as-is site improvements, and $80,000 as land value. His report noted that site value was determined by the abstraction method and review of vacant land sales in the area.

His report also showed a value under the income approach of $242,000. He applied a gross rent multiplier ( GRM ) of 110% (obtained from reviewing current rental data in the Subject area, but not of the comparable sales since he did not have their rental information) to the Subject s gross monthly rent of $2,200. He testified that he did not rely upon this approach but listed it only as a benchmark.

He provided the most weight to the market approach and concluded the Subject s value as $230,000 for tax year 2013.

FINDINGS

(A) Standard of Review

Original assessments and judgments of county boards of taxation are entitled to a presumption of validity. MSGW, supra, 18 N.J. Tax at 373. This 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. Pantasote Co. v. City of Passaic, 100 N.J. 408, 413 (1985). The presumption of correctness . . . stands, until sufficient competent evidence to the contrary is adduced. Township of Little Egg Harbor v. Bonsangue, 316 N.J. Super. 271, 285-86 (App. Div. 1998).

Once, as here, the court decides that the presumption of correctness is overcome, it must determine the value based on a fair preponderance of the evidence. Id. at 312-13. The court s independent assessment depends on the evidence before it and the data that are properly at its disposal. F.M.C. Stores Co. v. Borough of Morris Plains, 100 N.J. 418, 430 (1985). The complainant continues to bears the burden of persuading the court that the judgment under review is erroneous. Ford Motor Co. v. Township of Edison, 127 N.J. 290, 314-15 (1992).

(B) Credibility of Valuation Conclusions

An expert s opinion must be based on "facts, data, or another expert s opinion, either perceived by or made known to the expert, at or before trial. Evid. R. 703. Thus, generally, [a]n expert's opinion is only as good as the data upon which the expert relied. Greenblatt v. City of Englewood, 26 N.J. Tax 41, 54-55 (Tax 2010). Some adjustments in a market approach are subjective, however, this does not mean that an expert can rely solely upon his or her several years of experience in the real estate appraisal field particularly where it is possible to examine market data for a particular unit of comparison. See Genola Ventures-Shrewsbury v. Borough of Shrewsbury, 2 N.J. Tax 541, 554-55, n.5 (Tax 1981) (while experience . . . may lead to sound judgment valuation of real estate cannot be based solely on the same) (quotation omitted).4 See also Coastal Eagle Point Oil Co. v. Township of W. Deptford, 13 N.J. Tax 242, 299-300 (1993) ( the evidential value and weight to be given to the testimony of . . . experts . . . depends upon their candor, intelligence, knowledge, experience and especially upon the facts and reasoning which are offered as the foundation of their respective opinions ), aff'd, 15 N.J. Tax 190 (App. Div.), certif. denied, 143 N.J. 320 (1995).

Plaintiff s expert s cost approach is unreliable. Contrary to what was stated in his report, he conceded that he did not verify the existence of any vacant land sales for his site value conclusion, then claimed he did not find any sales during the specific time frame, therefore, used his background as an appraisal expert to arrive at the number.5 His report or testimony did not provide any data of the abstraction method his report claimed to have used for site value. There was no data to support the value he allocated to the as-is improvements. Nor was there any explanation for use of a 50% depreciation rate.

The sales comparable method is generally appropriate for valuation of a residential single-family property where sufficient recent, reliable transactions exist to provide a supportable indication of market value through value patterns or trends in the market. See Appraisal Institute, The Appraisal of Real Estate 297 (13th ed. 2008). Plaintiff s expert s use of comparable sales as a method of valuing the Subject is therefore credible.

Plaintiff s expert failed to verify the arms-length nature of the comparable sales. Specifically, he was unaware until trial, that Comparables Two and Three were estate and trust sales and that the buyers were the same for both properties. His reasoning that he would still use those sales had he known of them due to paucity of multi-family sales within the Borough is not credible. Paucity of sales does not substitute for an appraiser s professional obligation of ensuring that an estate or trust sale is nonetheless an arms-length transaction so that it qualifies as a reliable indicator of the market. Id. at 301, 304 (an appraiser should verify sales information by confirming that the data obtained is factually correct and that the transactions reflect arm s-length market considerations with either the seller or buyer or with brokers, closing agents or lenders ). If non-market conditions of sale are detected in a transaction, the sale can be used as a comparable sale but only with care. Id. at 329. In this connection, the circumstances of the sale must be thoroughly researched . . . [and any] adjustment should be well supported with data without which the sale as a comparable should be discarded. Ibid. Since the burden is upon plaintiff to show that the sale he deems comparable is a reliable indicator of the Subject s market value, plaintiff s expert should be diligent in verifying comparable sales which appear to be non-market or non-arms-length.

The expert s adjustment of $1 per SF for site value is subjective. He conceded that he did not examine any vacant land sales. The court cannot independently determine an amount in the absence of credible objective evidence in the record. However, the court finds the adjustments for GBA, central air, and garage reasonable.

Without the adjustments rejected above, the adjusted sale prices of the four comparables are $256,400; $233,100; $244,000; $191,500. The Borough did not indicate why the seller s status as a broker would render Comparable One questionable, and the court does not draw any negative inference merely because of this fact. Nothing was shown to refute the arms-length nature of Comparable Four (as was done for Comparables Two and Three). Placing weight only on Comparables One and Four, the court finds the fair market value of the Subject as $240,000.6 Since the average ratio is 100%, the assessment will be reflected at $240,000.

CONCLUSION

A judgment will be entered reducing the assessment as follows

Land: $ 148,200

Improvements: $ 91,800

Total: $ 240,000

Very truly yours

Mala Sundar, J.T.C.

1 The matter was tried to conclusion alongside two other properties owned by plaintiff and located in Manville; 217 Wyoming Place, Block 82, Lot 22 (Dkt No. 014962-2013) and 407 Washington Avenue, Block 110, Lot 6 (Dkt. No. 014819-2013). All three properties included multifamily homes with two units, and plaintiff s expert used the same four (4) comparable sales to arrive at a value for their respective homes. The court will however issue three separate opinions.

2 FEMA defines Zone X as areas of minimal flood hazard, which are the areas outside the [Special Flood Hazard Area] and higher than the elevation of the 0.2-percent-annual-chance flood. Flood insurance requirement is not mandatory.

3 See www.njactb.org.

4 The author of the quote observed that he would find it difficult to accept the notion that dependable valuation of real estate is nothing more than experience and judgment and that he 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. And, this property is worth so much because I say so. Genola Ventures, supra, 2 N.J. Tax at 555, n.5.

5 In his cost approach for a similar type of property in the companion case, 217 Wyoming Place, Block 82, Lot 22 (Dkt No. 014962-2013), which also involved a two-unit multi-family home, plaintiff s expert allocated $100,000 towards land value even though that property was located in the high-risk flood zone. In contrast, for the property in the companion case, 407 Washington Avenue, Block 110, Lot 6 (Dkt. No. 014819-2013), which also involved a two-unit multi-family home, plaintiff s expert allocated $75,000 towards land value even though that property was located in the moderate-risk flood zone.

6 Upon the court s questioning, plaintiff s expert agreed that tenanted versus untenanted status could be a factor driving market prices of income producing properties. See id. at 323-25 (an owner of a leased property has less than a fee simple interest by virtue of the lease, thus, when leased property is used as a comparable for valuation of a fee simple interest of the subject property some reasonable and supportable market adjustments for differences in rights is required, particularly where the leases are long-term and properties are multi-tenanted with quality tenants). He explained that since the comparables sale prices were within the range of one another, there was no significant difference attributable to the tenanted status of the Subject warranting an adjustment. The uncontradicted evidence that the Subject was not rent-controlled and that demand for rentals in the Subject s area was strong, allows for a reasonable inference that rents for the Subject and comparables (if rented) were close to, or at market rates. Thus, this issue would not make a significant difference in the court s decision to reduce the assessment particularly in the absence of any evidence from the Borough indicating otherwise.

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