Opinion ID: 1913947
Heading Depth: 1
Heading Rank: 5

Heading: Income Approach to Value.

Text: There are multiple appraisal techniques which can be used to arrive at a property's market value. Our cases indicate that the market data or comparable sales approach is to be used in determining the market value of property assessed under section 441.21 unless the market value cannot be readily established in that manner. Heritage Cablevision v. Board of Review, 457 N.W.2d 594, 597 (Iowa 1990). Where there is a lack of comparable sales, the assessor may use a replacement cost less depreciation or cost approach to determine market value. The cost approach was used by the city assessor in determining the value of seven shopping centers in Davenport. However, the assessor used the capitalization or income approach to determine the market value of Spring Village, Old Town, Village Shopping Center, and Walnut Center. The income approach was first used by the city assessor to determine shopping center value in 1987. At that time, the assessor had received training on the income valuation approach and had received actual rental and income expense information from Aetna Insurance Company, the prior owner of Spring Village. The 1987 sale of Spring Village allowed the assessor to compare the sale price to the owner's net income. In using the income approach, the capitalization rate represents an expert's judgment of the market interest rate reasonably to be expected by an investor in the property at the time involved. We have recognized the reliability of the income method and the significance of the capitalization rate. Riso, 362 N.W.2d at 518. At trial, Eagle called Ted Fisher as an expert witness. Fisher had been hired by the city assessor to prepare an appraisal of market value of Spring Village as of January 1, 1990. He testified the market value of Spring Village was $3,800,000. In doing so, he used the cost approach to value, arriving at a value of $4,000,000, the sales comparison approach to value, arriving at a value of $4,500,000, and the income approach to value, arriving at a value of $3,500,000. He used a capitalization rate of 15.295% (11.795% plus 3.5% tax adjustment). While he used multiple techniques in his assessment, he believes the income approach is the most important in estimating the market value of this income-producing property. Eagle also called J.T. Willits, an expert witness, who arrived at a fair market value by reviewing comparable property tax assessments with the Spring Village assessment. He compared both lot size and building size and computed the assessed value per square foot for the various properties. Based upon the comparisons, he believed the assessed value of Spring Village should be $2,853,000. Terrell A. Honnold was also called by Eagle as an expert witness. He too compared the assessed value of Spring Village with other comparable shopping centers. Based upon the comparisons, it was his opinion, the assessed value of Spring Village should be $2,265,000. Both Willits and Honnold believed the 1990 assessed value of Spring Village was not equitable when compared with other shopping centers.