On October 27, 2016, the Ohio Supreme Court (the court)
issued its decision in Columbus
City Schools Bd. of Edn. v. Franklin Cty. Bd. of Revision, Slip Opinion no.
2016-Ohio-7466, which stemmed from an appeal of a Board of Tax Appeal
(BTA), no. 2011-3590. The court’s decision involved real property valuation case and concerns the
proper valuation of a 240-unit apartment complex in Northeast Franklin County
for tax year 2005.
The property at the center of this case was originally
valued at $13,600,000 and the property owner sought a reduction in the valuation
t $9,720,000. The Board of Revision (BoR) ultimately adopted (in a 2-1 vote) a
valuation of $9,338,000 proposed by an MAI certified appraise. The BTA affirmed
the BoR decision.
The board of education (BoE) appealed arguing that the absence
of market data and other flaws in the appraisal made it unreasonable and
unlawful for the BoR and BTA to accept the appraisal.
There are 3 approaches used in appraising property—income,
cost and sales comparisons. For an
income producing property, the income stream is critical for determining its
value. When a property is new, the cost basis of the property may make more
sense. Because the variables affecting each property, such as unit size, floor
plans, amenities, access to transportation, etc. differ so much from one
property to the next, sale comps may have limited utility.
The appraiser in this
case relied primarily (but not exclusively) on the income stream produced by
the property. It was a newly constructed property so the appraiser averaged the
2004 and 2005 numbers since the property was leased up by 2005. He reasoned
that an arm’s length purchase price would typically be based upon the income
stream and therefore a more accurate valuation should rely on the income
approach. The appraiser also looked at
10 sales comparisons, taking into consideration the range of cap rates an price
per unit to serve as a check on his estimated value and to determine the best
cap rate to use in his income valuation.
The BoE objected and the case advanced to the court where
the BoE advanced the following proposition of law: “An appraisal that fails to include
relevant market data and the specific adjustments made thereto is inherently
unreliable and cannot be used to determine the true value of real property for
tax purposes.” It argued that the BTA erred is relying on the appraisal because
the report did not include sufficient data under its market and income
approaches and further did not include a cost approach, all of which was
unlawful. It should be noted that additional data was provided by the appraiser
in testimony.
When tax appeals come before the court, it is often held
that when the court reviews the BTA’s disposition of the factual issues in a
property valuation case, the court “does not sit either as a super BTA or as a
trier of fact de novo.” The BTA is given wide discretion in determining the
weight to give evidence and the credibility of witnesses before it. The BoE in
its appeal must demonstrate that the BTA’s and BoR’s weighing of evidence and
the force it applied to such evidence was unreasonable or unlawful, and the
standard the BoE must meet is that the BTA and BoR abused their discretion.
This is a difficult standard to meet. It means that the BoE must prove that the
BTA exhibited an unreasonable, arbitrary or unconscionable attitude.
The court found that while the BoE pointed to matters that definitely
relate to the probative force of the appraisal, it failed to establish
unlawfulness or an arbitrary or unconscionable attitude on the part of the BTA
in adopting the appraisal.
During testimony, the appraiser provided his reasons for using
the approach that he did and for why he did not use the cost approach. It was
in within the discretion of the trier of fact, i.e., the BoR and the BTA, to
credit the appraiser’s testimony and report.
When evaluating the merits of whether to appeal the decision
of the BTA in a property valuation, we need to keep in mind that the court will
not disturb the BTA’s decision merely because a different expert might have
found merit in using another approach.
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