Haskell v. Clatsop Co.

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IN THE OREGON TAX COURT MAGISTRATE DIVISION Property Tax DONALD M. HASKELL, Plaintiff, v. CLATSOP COUNTY ASSESSOR, Defendant. ___________________________________ DONALD M. HASKELL and CAROL R. HASKELL, Plaintiffs, v. CLATSOP COUNTY ASSESSOR, Defendant. ___________________________________ KLASKANINE LLC, an Oregon Limited Liability Company, Plaintiff, v. CLATSOP COUNTY ASSESSOR, Defendant. ___________________________________ IRVING AVENUE LLC, an Oregon Limited Liability Company, Plaintiff, v. CLATSOP COUNTY ASSESSOR, Defendant. DECISION TC-MD 010747B (Control) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) TC-MD 010747B (Control); 010748B; 010749B; 010750B; 010752B TC-MD 010751B; 020879B TC-MD 020875B; 020876B 020877B; 020878B TC-MD 020880B DECISION 1 Plaintiffs1 appeal the real market value of their properties for tax years 2000-2001 and 2001-02. A trial was held in Astoria. Harold Snow represented Plaintiffs. John Solheim appeared for Defendant. STATEMENT OF FACTS The properties under appeal consist of Donald and Carol Haskell's personal residence; four contiguous duplex buildings, each with a separate tax lot and account (Klaskanine properties); and two contiguous duplex buildings on one account but two tax lots (Irving property). The following table sets forth the account numbers, years under appeal, and the addresses. TC-MD Account Location Tax Year 010751B 26398 Lexington 2000-2001 020879B 26398 Lexington 2001-02 010752B 25199 1089 & 1091 Irving 2000-2001 020880B 25199 1089 & 1091 Irving 2001-02 010747B 25355 980 Klaskanine 2000-2001 020875B 25355 980 Klaskanine 2001-02 010748B 25358 920 Klaskanine 2000-2001 020878B 25358 920 Klaskanine 2001-02 010749B 25356 960 Klaskanine 2000-2001 020876B 25356 960 Klaskanine 2001-02 010750B 25357 940 Klaskanine 2000-2001 020877B 25357 940 Klaskanine 2001-02 At the start of the trial, the parties agreed to the following for the property known in 1 Plaintiffs in these cases are related parties. For purposes of clarity, the court will refer to Donald Haskell as Plaintiff. When referring to Plaintiffs, the court is referring to all Plaintiffs in these cases. DECISION TC-MD 010747B (Control) 2 Clatsop County tax records as Account 26398: TC-MD 010751B 2000-2001 TC-MD 020879B 2001-02 Land $176,000 $184,800 Improvements $307,000 $325,420 Total RMV $483,000 $510,220 Sometime during the 1970s, Donald and Carol Haskell decided that upon their retirement they would move to Astoria. In accordance with their plan, they hired a local real estate broker to help them look for investment properties. Plaintiff began buying investment properties in 1984. He buys them for both income and appreciation. Currently, Plaintiff owns a total of 66 apartment units in Astoria and has formed a management company, Wacoma Partners (Wacoma). In addition to the participation of Donald Haskell and Carol Haskell in their business, Wacoma employs four employees - a property manager, a bookkeeper, and two maintenance employees. Wacoma manages only Plaintiff's properties. Irving Avenue Property As noted above, the Irving property consists of two contiguous duplexes, on two tax lots but one account. The duplexes are a legal nonconforming use. The modest duplexes were built in 1967. Plaintiff purchased the two duplexes in one transaction in 1984. Three of the units have two bedrooms and one bath. Those three units are approximately 768 square feet each. The fourth unit is one bedroom and one bath. It is somewhat smaller. The duplexes are up and down units, that is, one unit is on the first floor and one unit is on the second floor. The upstairs units have a view of the Columbia River. The duplexes DECISION TC-MD 010747B (Control) 3 share ingress and egress, parking, garbage collection area, and a laundry room. Each building has its own water meter. The average stay for a tenant is 12 to 18 months. During the years at issue, the monthly rent of the one bedroom unit was between $440 and $485; the monthly rent of the two bedroom units was between $485 and $535. (Ptf's Ex 8.) Plaintiff requests a real market value of $30,000 per unit or a total of $120,000 for the years as issue. Defendant requests the following values:2 TC-MD 010752B 2000-2001 TC-MD 020880B 2001-02 Land $111,436 $118,122 Improvements $ 84,064 $ 77,378 Total RMV $195,500 $195,500 Total MAV $159,317 $164,096 Klaskanine Properties As noted above, the Klaskanine properties consists of four contiguous duplex buildings, each with a separate tax lot and account. These duplexes are legal nonconforming uses. The duplexes were built in 1973. Plaintiff purchased the four duplexes in one transaction in 1984. Each of the eight units has two bedrooms and one bath. The units are each approximately 870 square feet. The duplexes share ingress and egress, parking, and garbage. Each duplex has its own water meter. The 920 and 940 Klaskanine duplexes face each other as do 960 and 980 Klaskanine. The duplexes facing each other share a common sidewalk. During the years at issue, the monthly rent of each two bedroom unit was between $575 and $630. Each of the four tax lots "contain[s] an 2 The requested real market values for the improvements are a slight reduction from that ordered by the board of property tax appeals (BOPTA). DECISION TC-MD 010747B (Control) 4 easement for utilities, and ingress and egress over and across the north 15 feet and further indicate[s] that the properties will be sold subject to the easements." (Def's Ex B at B1.) David Bechtel, maintenance supervisor of Wacoma, testified as to the condition of the properties. He testified to replacing floors in some of the units, rot in rim joists, standing water under all the buildings in the winter, rotted floors and siding, and some mold issues. Ralph Nordstom testified as to the quality of construction. He has lived in his house, directly behind the subject properties for 48 years. He watched the properties being built and testified that, in his opinion, they were not very well built. Solheim expressed concern about the testimony relating to the condition of the property, arguing that those conditions were not known on the assessment dates so they would not be a factor in valuing the properties. Plaintiff requests a real market value of $30,000 per unit or $60,000 per duplex for a total of $240,000 for the years as issue. Defendant requests the following values:3 Acct 25355 Land 2000-2001 RMV $ 32,920 Improve $ 70,180 MAV 2001-02 RMV 2000-2001 RMV $ 34,895 $ 68,205 RMV $ 32,920 $ 70,180 3 2000-2001 RMV $ 103,100 $ 91,674 $ 34,895 $ 68,205 MAV 25357 $ 103,100 $ 91,668 MAV 2001-02 $ 103,100 $ 88,999 MAV 25356 Total $ 103,100 $ 94,423 $ 32,920 $ 70,180 $ 103,100 The requested real market values for the improvements are a slight reduction from that ordered by BOPTA. DECISION TC-MD 010747B (Control) 5 MAV 2001-02 RMV $ 91,674 $ 34,895 $ 68,205 MAV 25358 2000-2001 RMV $ 94,423 $ 32,920 $ 70,180 MAV 2001-02 RMV MAV $ 103,100 $ 103,100 $ 90,297 $ 34,895 $ 68,205 $ 103,100 $ 93,005 Valuation Theories A number of witnesses testified for Plaintiffs as to the appropriate method of valuing both the Irving property and the Klaskanine properties. The witnesses were uniform in their testimony that the properties should be valued using the income approach to valuation. Plaintiff testified that the properties incur a higher than normal level of expenses. Gail Webb, an Oregon certified general appraiser, testified that the properties are multi-family investment properties that the market would value using the income approach. He estimated the net operating income (NOI) of the Irving property at $12,375. Assuming a 10 percent capitalization rate, he arrived at an estimated value of $123,750 or rounded to $125,000. For the Klaskanine properties, he estimated an NOI of $30,250. Again assuming a 10 percent capitalization rate, he arrived at a total estimated value of $302,500, rounded to $305,000. He discounted using the gross rent multiplier (GRM) testifying the GRM is too broad, with no way to factor in expense ratios. He contrasted the GRM with NOI testifying that NOI relates better to the quality of the investment and future income stream. Although Plaintiff submitted a myriad of evidence, much of it relating to income, no appraisal was submitted. Webb's estimates of value for the properties were DECISION TC-MD 010747B (Control) 6 given by testimony only. Although not labeling his exhibits appraisals, Solheim prepared a careful written analysis for both the Irving property and the Klaskanine properties. He considered the cost approach but discarded it due to the age of the properties. He also considered the income approach but discarded it as well because in his professional experience, and conversations with fee appraisers, "properties such as [d]uplexes, [t]riplexes, and [f]ourplexes, whether sold individually or in groups, neither sell nor are valued based upon their [n]et [o]perating [i]ncome." (Def's Ex B at B12, Ex C at C8.) Thus he relied on the market approach to valuation. Within the market approach, two methods were used. Solheim used GRM and a comparison of sales price by living unit. In using GRM, he explained that the method "has the most uniform application across differing management styles." (Def's Ex B at B13, Ex C at C8.) In other words, he viewed the uniform application as a strength, rather than a weakness. GRMs, according to Solheim, tend to be smaller as the number of units in a building increases. The GRMs in his 10 comparable sales varied between 7.8 and 10.18. He used a GRM of 7.8 because that sale was viewed as most comparable; the fourplex, although a private sale, is in Astoria and also has some deferred maintenance issues. Solheim employed two variations within the comparison by living unit methodology. He employed a sales price per square foot of gross building area and sales price per living unit. Although he calculated estimates of value based on sales price per square foot, he gave the least weight to this method because this method "may include building area not actually leased to the [t]enant." (Def's Ex B at B16, Ex C at C12.) In comparing the sales price per living unit, the 16 sales varied from $31,250 to $73,333 per living units. (Def's Ex B at B41, Ex C at C36.) After taking into account the location of the sales and DECISION TC-MD 010747B (Control) 7 other factors, Solheim selected a sale in Seaside as the most comparable. The property sold for $53,750 per living unit. (Def's Ex B at B41, Ex C at C12.) He chose that sale because, among other reasons, it is also a legal nonconforming use. From the picture of that sale, that property also appears to have some deferred maintenance issues. (Def's Ex B at B29, Ex C at C24.) After adjustments, primarily due to the property's superior location in Seaside, he selected a sales price of $48,400 per living unit as the appropriate sales price. ANALYSIS In any proceeding before the Magistrate Division, the party seeking affirmative relief bears the burden of proof. ORS 305.427.4 In these cases, a number of witnesses credibly testified for Plaintiffs. Some witnesses testified to maintenance issues relating to the properties, particularly the Klaskanine properties, and the higher than average expenses associated with the properties. Others testified to the dynamics of the rental market in Astoria. Still others testified to how the market would view and value the properties. Finally, Gail Webb, an Oregon certified general appraiser, testified to his opinions of value of the properties. He valued the properties using NOI, testifying that the method best takes the relevant factors specific to the properties, such as the higher than normal expenses relating to the properties. He used a capitalization rate of 10 percent; he did not provide his reasoning for using the 10 percent capitalization rate. He discounted Defendant's comparable sales; the Astoria sale because it was a private sale and the others because they were not located in Astoria and thus were in a different market. Plaintiffs submitted a significant amount of evidence. That evidence contained 4 All references to the Oregon Revised Statutes are to 2001. DECISION TC-MD 010747B (Control) 8 specifics relating to the properties such as tax statements, pictures of the properties, surveys of the properties, and expense and rent schedules for the properties. Plaintiffs also submitted tax schedules, both personal property returns and income tax schedules. Finally, Plaintiffs submitted a list of duplex sales in the county. The one thing Plaintiffs did not submit was an appraisal or written analysis of value. Defendant did not provide the same quantity of witnesses. Indeed, Solheim was Defendant's only witness. However, he prepared, submitted into evidence, and testified to his written analysis of value. Notwithstanding the quality and quantity of Plaintiffs' witnesses and exhibits, the court finds that Plaintiffs have not met their burden of proof. The primary dispute was whether the properties should be valued using the income approach to valuation or the market approach. Although Plaintiffs' witnesses made a strong argument that the income approach to valuation was the correct approach, Solheim made an equally strong argument that the market approach was the correct approach. Even if the court agreed that the income approach was the correct approach, Webb did not explain his basis for using a capitalization rate of 10 percent. Without knowing the basis for the chosen capitalization rate, the court cannot gauge the reliability of Webb's estimate of value. Additionally, although the court accepts that the subject properties have deferred maintenance, many of Defendant s comparable sales also appear to have deferred maintenance. Nor did Plaintiffs explain the basis for their assertion that sales not in Astoria were in a different market. Further, Plaintiffs did not submit either an appraisal or written analysis of value. Plaintiffs assertions without supporting analysis were not persuasive. The court finds Solheim's written analysis of value, supported by his testimony, simply more persuasive. DECISION TC-MD 010747B (Control) 9 CONCLUSION For the reasons stated above, the court was not persuaded. Plaintiffs did not meet their burden of proof. Now, therefore, /// /// IT IS THE DECISION OF THIS COURT that the real market value of the property described as Account 23698 was, as stipulated for tax years 2000-2001 and 2001-02: TC-MD 010751B 2000-2001 TC-MD 020879B 2001-02 Land $176,000 $184,800 Improvements $307,000 $325,420 Total RMV $483,000 $510,220 IT IS FURTHER DECIDED that the real market and maximum assessed values of the property described as Account 23698 was as follows for tax years 2000-2001 and 2001-02: TC-MD 010752B 2000-2001 TC-MD 020880B 2001-02 Land $111,436 $118,122 Improvements $ 84,064 $ 77,378 Total RMV $195,500 $195,500 Total MAV $159,317 $164,096 IT IS FURTHER DECIDED the real market and maximum assessed values of the DECISION TC-MD 010747B (Control) 10 property described as Account 23698 was as follows for tax years 2000-2001 and 200102: Acct Year/TC-MD 25355 2000-2001/ RMV 010747B MAV 2001-02/ RMV 020875B MAV 2000-2001/ RMV 010749B MAV 2001-02/ RMV 020876B MAV 2000-2001/ RMV 010750B MAV 2001-02/ RMV 020877B MAV 2000-2001/ RMV 010748B MAV 2001-02/ RMV 020878B MAV 25356 25357 25358 Land Improve $ 32,920 $ 70,180 Total $ 103,100 $ 88,999 $ 34,895 $ 68,205 $ 103,100 $ 91,668 $ 32,920 $ 70,180 $ 103,100 $ 91,674 $ 34,895 $ 68,205 $ 103,100 $ 94,423 $ 32,920 $ 70,180 $ 103,100 $ 91,674 $ 34,895 $ 68,205 $ 103,100 $ 94,423 $ 32,920 $ 70,180 $ 103,100 $ 90,297 $ 34,895 $ 68,205 $ 103,100 $ 93,005 IT IS FURTHER DECIDED that the county shall correct the assessment and tax rolls to reflect the above values. Any refund due following this correction shall be promptly paid with statutory interest. Dated this _____ day of June, 2003. _________________________________ SALLY L. KIMSEY DECISION TC-MD 010747B (Control) 11 MAGISTRATE IF YOU WANT TO APPEAL THIS DECISION, FILE A COMPLAINT IN THE REGULAR DIVISION OF THE OREGON TAX COURT, FOURTH FLOOR, 1241 STATE ST., SALEM, OR 97301-2563. YOUR COMPLAINT MUST BE SUBMITTED WITHIN 60 DAYS AFTER THE DATE OF THE DECISION OR THIS DECISION BECOMES FINAL AND CANNOT BE CHANGED. THIS DOCUMENT WAS SIGNED BY MAGISTRATE SALLY L. KIMSEY ON JUNE 30, 2003. THE COURT FILED THIS DOCUMENT ON JUNE 30, 2003. DECISION TC-MD 010747B (Control) 12

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