Source: http://masscases.com/cases/sjc/375/375mass360.html
Timestamp: 2019-04-24 02:06:51+00:00

Document:
MANUEL P. CORREIA vs. NEW BEDFORD REDEVELOPMENT AUTHORITY.
Present: QUIRICO, BRAUCHER, WILKINS, & LIACOS, JJ.
PETITION for assessment of damages filed in the Superior Court on May 31, 1973.
Charles R. Desmarais (Philip Beauregard with him) for the plaintiff.
the judgment entered pursuant to that verdict. The plaintiff was granted further appellate review by this court. 372 Mass. 873 (1977). We affirm the judgment of the Superior Court.
At the time of the taking in 1971, the property in question consisted of "parcel one," on which was situated the principal building, and "parcel two," on which were situated two smaller buildings. The principal building had been constructed in 1922, and an addition had been built in 1963. The basement of the 1922 structure was used as a tire retreading shop, the main floor was used to sell tires, automotive supplies, and household appliances. The 1963 addition housed a service area for installing tires. The smaller buildings on parcel two were used for a television service department.
The plaintiff called three witnesses who testified regarding the value of the property. On appeal, the defendant raises several issues relating to the admissibility of certain testimony of all three witnesses. The only issue that need concern us at this stage of review is that which the Appeals Court found dispositive of the case -- the admissibility of evidence concerning the cost of reproducing the buildings in question. Correia v. New Bedford Redevelopment Auth., 5 Mass. App. Ct. 289 , 290-294 (1977).
Council, Inc. v. Massachusetts Turnpike Auth., 335 Mass. 189 , 193 (1956).
At least three methods of calculating fair market value are employed by experts in the real estate field. See State v. Wilson, 6 Wash. App. 443, 447-448 (1972), citing American Institute of Real Estate Appraisers, The Appraisal of Real Estate 60 (5th ed. 1967). They are: "1. The current cost of reproducing a property less depreciation from deterioration and functional and economic obsolescence. 2. The value which the property's net earning power will support, based upon a capitalization of net income. 3. The value indicated by recent sales of comparable properties in the market," State v. Wilson, supra. These methods will be referred to herein as the depreciated reproduction cost (DRC) method, income capitalization method, and the market study method, respectively. [Note 2] As the court in Wilson observed: "Each of these approaches is but a method of analyzing data to arrive at the fair market value of the real property as a whole." 6 Wash. App. at 448.
their camp land for a highway and the attendant loss of privacy and seclusion. We reasoned: "It is not to be expected that the properties adapted for such a specialized use will have a very active market or that their market value can be shown by sales of nearby comparable property. . . . To assist the trier of the fact of value to reach a just result when such a property is taken by eminent domain, it frequently will be necessary to allow much greater flexibility in the presentation of evidence than would be necessary in the case of properties having more conventional uses." We concluded, more specifically, that "[t]he properties may be of a type, not frequently bought or sold, but usually acquired by their owners and developed from the ground up, so that the cost of land plus the reproduction cost (less depreciation where appropriate) of improvements may be more relevant than in the ordinary case."
we addressed the problem in the context of special purpose government properties, and stated that evidence based on the DRC method may be helpful in ascertaining value "where the evidence warrants the conclusion that the real value of a property taken by eminent domain cannot be shown by a sequence of sales of similarly used properties [market study method], by a capitalization of earnings [income capitalization method], or by other usual criteria." It thus appears that while introduction of evidence of value based on the DRC method is generally disfavored, such evidence may be introduced in certain circumstances where reliable data based on the other methods is not available.
An oft-repeated reason for the disfavored status of the DRC method is expressed in Commonwealth v. Massachusetts Turnpike Auth., supra at 148: "There is danger, of course, that evidence of reproduction cost (even if it purports to be fairly adjusted) may lead to `an excessive award unless it is [in fact] adequately discounted for obsolescence and inadequacy as well as for physical depreciation' (emphasis supplied). See Orgel, Valuation under Eminent Domain (2d ed. ) Section 199, and also Sections 188-198." No per se rule requiring the exclusion of DRC data was laid down, however. To the contrary, we noted that, where the structures taken remained reasonably well adapted to the special purposes for which they were employed and had not been shown to have been in such condition as to make reproduction unlikely or imprudent, DRC data reflected real value. We reasoned that, under such conditions, "adjusted reproduction cost figures could have been admitted in evidence because (a) the current cost of reproducing the buildings could be adjusted (fairly and without undue complication or conjecture) to reflect accrued physical depreciation and any functional or other obsolescence, and (b) the adjusted figure would reasonably tend to prove what the owner would have to pay to obtain approximately the same still desirable and useful structures, after taking into account age, wear and tear, and observed obsolescence." Id. at 148-149.
Based on analysis of the decisional precedents just discussed, as well as other precedents, the Appeals Court in the instant case arrived at the following formulation of the admissibility of DRC data: "[I]t is admissible only (a) where reproduction of essentially the same type of structure would be reasonable in the event of its destruction or taking . . . , and (b) it is impossible to prove the value of the property without dispensing with conventional fair market or income capitalization rules" (citation omitted) (emphasis added). 5 Mass. App. Ct. at 291-292. See Silk v. Commonwealth, 1 Mass. App. Ct. 149 (1973).
particularly appropriate in cases, such as the instant case, in which the property taken has itself not been rented and there are no sales of comparable property on which to base an estimate of fair market value. Id. at 293-294.
Without passing judgment on the reliability and appropriateness in this case of the second method of capitalizing income approved by the Appeals Court, we think it apparent that this record clearly shows the difficulty of reaching a reliable figure of market value of this property by the exclusive use of any one method of valuation. This observation takes on special relevance in view of the Appeals Court's strict adherence in this case to the "impossibility" test. We therefore think it counter-productive, as well as unrealistic, to impose a strict barrier to the reasonable use of "unconventional" methods -- such as the DRC method properly employed -- in every case in which plausible, yet not wholly satisfactory, calculations may be made by use of one the "conventional" methods.
it does not follow that we must abandon long maintained distinctions between the various methods of calculating value. Such distinctions -- specifically, the disfavored status of the DRC method -- are grounded in the collective experiences of real estate practitioners, commentators, and courts, and based on practical concerns. We do not depart from such long established principles. The rule of disfavor, however, should be viewed as one of need, not "impossibility."
Although cognizant of the view that DRC data does not always reflect a meaningful measure of value, we have nonetheless recognized that the trial judge should be allowed to exercise sound discretion in determining when special conditions exist so as to justify the use of such data. Lipinski v. Lynn Redevelopment Auth., 355 Mass. 550 , 551-552 (1969). Bachelder Truck Sales, Inc. v. Commonwealth, 350 Mass. 270 , 273 (1966).
of [the DRC] approach. It is true, and I'll instruct you that our Supreme Court has said that this method . . . is admissible, in the discretion of the Court. I exercised my discretion and allowed it in, but I will instruct you that it's often inconclusive." No objection was made to the charge, and no additional instructions were requested. In all these circumstances, we see no error in the admission of evidence of value based on the DRC method. It was properly received, to be given appropriate weight with the other evidence, as a guide to the jury in determining fair market value. See Commonwealth v. Massachusetts Turnpike Auth., 352 Mass. at 148.
2. Other issues. The Appeals Court adequately treats, and we believe correctly disposes of, the remaining major arguments raised by the defendant in support of its request for a new trial. Correia v. New Bedford Redevelopment Auth., 5 Mass. App. Ct. 289 , 294-296 (1977). We have reviewed other arguments advanced by the defendant and not discussed by the Appeals Court, and find them to be without merit.
3. Conclusion. Having concluded that the trial judge did not abuse his discretion in determining that evidence of value based on the depreciated reproduction cost method could be admitted in evidence in the special circumstances of this case, and finding no other error, we order that the judgment of the Superior Court be affirmed. Each party is to bear its own costs on appeal.
[Note 1] Correia v. New Bedford Redevelopment Auth., 5 Mass. App. Ct. 289 (1977).
[Note 2] Evidence of value based on all three methods was introduced at trial in the instant case. A general contractor called by the plaintiff applied the DRC method to calculate a value of $609,960 for the buildings alone. The plaintiff's real estate expert testified that the value of the buildings and land -- based on consideration of all three methods with regard to the buildings and a market study approach as to the land -- was $375,000 at the time of taking. The plaintiff took the stand and offered his opinion that the value of the buildings and land was $750,000.
[Note 3] This witness testified that he used three methods of valuation, including DRC, in arriving at an appraisal of the value of the building on parcel one. The defendant admitted the qualifications of this expert and made no objection to this use of DRC data.
[Note 4] See Tigar v. Mystic River Bridge Auth., 329 Mass. 514 , 518 (1952) ("[T]he usual rule should be departed from and testimony of this kind admitted only when without it is impossible to prove the value of the property in question"), quoting fron Cochrane v. Commonwealth, 175 Mass. 299 , 303 (1900). But see Newton Girl Scout Council, Inc. v. Massachusetts Turnpike Auth., 335 Mass. 189 , 195 (1956) ("[I]t is proper to determine market value from the intrinsic value of the property and from its value for the special purposes for which it is adopted and used" in cases "where ordinary methods will produce a miscarriage of justice"); Commonwealth v. Massachusetts Turnpike Auth., 352 Mass. 143 , 147-148 (1967) (where "evidence warrants the conclusion" that the real value of special purpose government buildings cannot be shown by market study or income capitalization methods, DRC computations may be received). We note also that in Silk v. Commonwealth, 1 Mass. App. Ct. 149 (1973), the majority of the Appeals Court appear to treat this test as stating whether it is "possible" or "impossible" to establish the value of property taken by reference to "ordinary market data" is a matter of the sound discretion of the trial judge.

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