Opinion ID: 1348704
Heading Depth: 3
Heading Rank: 2

Heading: Sales to Japanese Buyers

Text: Steiner argued in the tax court that sales to Japanese investors were not comparable without adjustment, thus such sales should have been disregarded or discounted in calculating the benchmark value and the fair market value of Steiner's property. Steiner's experts opined that Japanese investors were paying more than fair market value because they had special influences, motivations and conditions and they were armed with tremendous financial wallop. The experts testified that, at the time of the alleged above market sales, the dollar to yen ratio was high, Japan real estate prices were high, and low interest rates were available in Japan. Thus, they argued, Japanese buyers were paying much higher prices than were economically justified by any measure of value. Although wealthy Japanese investors in Hawaii property may be a modern phenomenon, Steiner's theory is not. Bonbright's 1937 treatise on the appraisal of property discusses a similar theory that property should be valued at its intrinsic value or justified price rather than its fair market value. J. Bonbright, 1 Valuation of Property 24-29 (1937). Intrinsic value [8] differs from fair market value in that it represents, not what the property could presently be sold for, but what, in the appraiser's judgment, the property would sell for, were the market composed of (a) intelligent individuals who (b) were interested in buying and selling the property only by reference to its investment merits. Id. at 27. [9] The intrinsic value theory mirrors Steiner's argument that sales to Japanese buyers are not economically justified, thus the court should adjust the sales data to reflect what would be a property's intrinsic value or justified price. Bonbright states that one reason why courts have wisely hesitated to embrace the concept of intrinsic value is that it would be extremely difficult to estimate. Id. at 28-29. If [tax assessors or tax courts] were compelled to find the intrinsic value ... for tax purposes, the administration of the law would become almost hopeless. Endless controversies would arise between taxpayers and assessors, many of which would be carried into the courts. Faulty as is market price as an index of value, it supplies a relatively objective and easily administered basis of valuation that no other method can supply. Id. at 29. We agree with this analysis and will not inject uncertainty into Hawaii's property tax assessments by subscribing to Steiner's theory. We further note that Steiner's theory invites a sale-by-sale analysis of the justified price; we find this to be repugnant to the concept of using appropriate systematic methods suitable for mass valuation. See ROH § 8-7.1(a). Thus, we reject Steiner's argument that sales to Japanese buyers do not reflect the fair market value of the properties sold to them. In particular, we reject Steiner's argument that the 1987 sale of the parcel next to the Steiner property should be discounted because the buyer was a Japanese citizen and thus he paid more than fair market value. Market value ... is no more than the value in money of any property for which that property would sell on the open market by a willing seller to a willing buyer. In re Puna Sugar Co., 56 Haw. 621, 624, 547 P.2d 2, 4 (1976). The property next door was listed on the open market for 95 days at $3,000,000 and sold for $2,750,000; and, there is no evidence suggesting other than an arms-length transaction between a willing buyer and a willing seller. Furthermore, although the buyer was Japanese, he has owned and lived in a Kahala beach condominium since 1979 and is the owner of a local business, the Pearl City Tavern. Even if we agreed with Steiner's above-market theory, which we do not, nationality alone would be insufficient to establish that this transaction was tainted by the Japan factor. Although the Tax Appeal Court made findings of fact that recited Steiner's expert's testimony regarding the above-market theory, the court did not incorporate this theory into its own valuation of the subject property. The court merely substituted the Kahala Beach benchmark and applied it to a smaller portion of the Steiner parcel. The Kahala Beach benchmark was also based in large part on sales to Japanese buyers. Thus, the Kahala Beach benchmark used by the court was equally influenced by the alleged above-market sales and its use in no way indicates the court's adoption of Steiner's theory. The City argues that the Tax Appeal Court disregarded sales to Japanese buyers in determining benchmark and fair market values, while also arguing that the court failed to adjust the Kahala Beach benchmark upward when the court applied them to less than 20,000 sq. ft. of the property. We find it equally plausible that the court used the Kahala Beach figure in an attempt to adjust upward from the Black Point benchmark when it decided to apply the benchmark to less than 20,000 sq. ft. Since both the Kahala Beach and the Black Point benchmarks incorporated sales to Japanese as well as other buyers, we find the City's argument on this point to be misguided. However, as stated above, we agree with the City that the tax court erred by using the Kahala Beach benchmark in this case. Rather, we conclude that the court should have applied the Black Point benchmark as the City did in its assessment.