Opinion ID: 1782662
Heading Depth: 1
Heading Rank: 4

Heading: Did Taxpayers Introduce Competent Evidence of Value From Two Disinterested Witnesses?

Text: In order to establish which party has the burden of proof, we must first determine whether the Soifers introduced competent evidence by at least two disinterested witnesses that the market value of the property is less than the market value determined by the assessor. Iowa Code § 441.21(3). There is no dispute that the taxpayers' expert witnesses, Blanchfield and Parsons, are disinterested. See Post-Newsweek Cable, Inc. v. Bd. of Review, 497 N.W.2d 810, 813 (Iowa 1993) (defining a disinterested witness as [o]ne who has no right, claim, title, or legal share in the cause or matter in issue, and who is lawfully competent to testify). The fighting issue is whether they offered competent evidence. The statutory requirement of competent evidence means that the testimony of the disinterested witnesses must comply with the statutory scheme for property valuation for tax assessment purposes. Boekeloo, 529 N.W.2d at 279. If it does not comport with the statute, the evidence is not relevant and is, therefore, inadmissible. See Ross v. Bd. of Review, 417 N.W.2d 462, 465 (Iowa 1988); cf. Johnson v. Iowa Dist. Ct., 756 N.W.2d 845, 850 n. 4 (Iowa 2008) (stating [c]ompetent evidence means admissible evidence). Chapter 441 requires that the comparable-sales approach be used unless market value cannot be established under this method of valuation. Iowa Code § 441.21(2). As noted earlier, the parties' experts agreed the market value of the subject property could be determined using the comparable-sales approach. We have held that market-value testimony by a taxpayer's witnesses under a comparable-sales approach is competent only if the properties upon which the witnesses based their opinions were comparable. Boekeloo, 529 N.W.2d at 279; Bartlett & Co. Grain v. Bd. of Review, 253 N.W.2d 86, 88 (Iowa 1977) (stating if the taxpayers do not so persuade the fact finder as to comparability, then the fact finder cannot consider the sales prices of those other [properties] or the experts' opinions predicated on [those sales prices,] in determining the [market value] of the subject [property]). In addition, the property owner is required to offer a sufficient factual basis for the [witnesses'] opinions to take them out of the realm of mere speculation and conjecture. Riso v. Pottawattamie Bd. of Review, 362 N.W.2d 513, 518 (Iowa 1985) (citing Osborn v. Massey-Ferguson, Inc., 290 N.W.2d 893, 899 (Iowa 1980)). In other words, if any element of the ground of protest [is] not supported by substantial evidence, the foundation would be insufficient to support an expert opinion on the ultimate issue, and consequently, the witness's testimony would not constitute competent evidence. Id. The issue of comparability has two facets: the property offered for comparison must be comparable and the sale of that property must be a normal transaction. See Iowa Code § 441.21(1) ( b ) (referring to the sales prices of comparable property in normal transactions); Equitable Life Ins. Co. v. Bd. of Review, 281 N.W.2d 821, 823 (Iowa 1979) (stating sales price approach depends upon the availability of sales prices of the property or comparable property in normal transactions). To determine whether other properties are sufficiently comparable to be used as a basis for ascertaining market value under the comparable-sales approach, we have adopted the rule that the conditions with respect to the other land must be similar to the property being assessed. Bartlett & Co. Grain, 253 N.W.2d at 93. As we stated in Bartlett & Co. Grain, `[s]imilar does not mean identical, but having a resemblance; and property may be similar ... though each possess various points of difference.' Id. (quoting Redfield v. Iowa State Highway Comm'n, 251 Iowa 332, 341, 99 N.W.2d 413, 418 (1959)). Whether other property is sufficiently similar and its sale sufficiently normal to be considered on the question of value is left to the sound discretion of the trial court. See id. at 94. Factors that bear on the competency of evidence of other sales include, with respect to the property, its [s]ize, use, location and character, and, with respect to the sale, its nature and timing. Crozier v. Iowa-Ill. Gas & Elec. Co., 165 N.W.2d 833, 834 (Iowa 1969). [5] When sales of other properties are admitted, the market value of the assessed property must be adjusted to account for differences between the comparable property and the assessed property to the extent any differences would distort the market value of the assessed property in the absence of such adjustments. Iowa Code § 441.21(1)( b ); Bartlett & Co. Grain, 253 N.W.2d at 88; Dowden v. Dickinson County Bd. of Review, 338 N.W.2d 719, 723 (Iowa Ct.App.1983). In addition, if the sale itself is an abnormal transaction[], the market value must be adjusted to eliminate the effect of factors which distort market value. Iowa Code § 441.21(1)( b ) (listing as distorting factors sales to immediate family of the seller, foreclosure or other forced sales, contract sales, discounted purchase transactions or purchase of adjoining land or other land to be operated as a unit); accord Foreman & Clark of Iowa, Inc., 286 N.W.2d at 172-73 (requiring adjustment for abnormal contract sale). If distorting sale factors or the points of difference between the assessed property and the other property are not quantifiable so as to permit the required adjustment, the other property will not be considered comparable. See Bartlett & Co. Grain, 253 N.W.2d at 94 (rejecting comparability of property that differed from subject property because of insufficient evidence to enable us to translate that difference into dollars of value). In the present case, the Board claims the only comparable properties are those being used for a franchise restaurant and the only sales that reflect the value of this use are sales of such properties to sellers who plan to continue the franchise use. The Board argues that a franchise property has architectural appeal, that is, a design that the general public recognizes. It claims there is value in this architecture that is captured only when the sale is a franchise-to-franchise sale. The taxpayers contend for a broader interpretation of similar, one that would include, as comparable properties, those used for restaurant purposes in general, not only fast-food, franchise restaurants. They also argue sales of franchise property for uses other than continuation of the franchise are probative of the market value of franchise property and, therefore, a competent basis for expert opinion. The first issue we must address is whether only other franchise properties sufficiently resemble the Soifers' property so as to provide an adequate factual foundation for a comparable-sales valuation. It cannot credibly be disputed that properties used for the operation of a fast-food, franchise restaurant would, in the absence of other significant differences, be most similar to the property being assessed in this case. As noted above, property is to be valued based on its present use, Iowa Admin. Code r. 701-71.1(1), and the present use of this property is a fast-food, franchise restaurant. But that fact does not necessarily mean nonfranchise, one-of-a-kind restaurants are not similar to fast-food, franchise restaurants. We find guidance in our Crozier opinion. In Crozier, the issue was the market value of a farm used for plaintiffs' unique and financially rewarding wilderness hog farrowing operation. 165 N.W.2d at 834. The property owner challenged the defendant's expert's testimony regarding sales of comparable property, asserting there was not sufficient similarity between the comparable property and the subject farm because the comparable properties did not have a wilderness hog farrowing operation. Id. We held the trial court did not abuse its discretion in admitting evidence of these sales because the comparable properties were farms that were similar in size, use, location and character to the subject property, even though they did not have a wilderness hog farrowing operation. Id. at 835. We considered the absence of a wilderness hog farrowing operation on the comparable properties a mere difference in operation [that went] to the weight and credibility of the sales as comparable rather than to their admissibility. Id. The Iowa Court of Appeals reached a similar conclusion in concluding the difference between a large anchor store space and small retail shop space in a shopping mall did not render a sale of shopping mall space occupied by a series of smaller tenants inadmissible to establish the value of space occupied by a large anchor tenant. Sears, Roebuck & Co. v. Sieren, 460 N.W.2d 887, 890 (Iowa Ct.App.1990). Although the court rejected the taxpayer's argument that because of this difference the properties are not comparable sales, the court noted the difference was one factor to consider in weighing the evidence. Id. We think the approach followed in Iowa in admitting evidence of comparable sales is accurately reflected in the following statement from a sister state: [W]here the properties are reasonably similar, and a qualified expert states his opinion that they are sufficiently comparable for appraisal purposes, it is better to leave the dissimilarities to examination and cross-examination than to exclude the testimony altogether. Stewart v. Commonwealth, 337 S.W.2d 880, 884 (Ky.Ct.App. 1960). As this court has recently noted in a different context, a requirement that evidence be competent does not mean that it must be credible. Johnson, 756 N.W.2d at 850 n. 4. Consequently, in determining whether the Soifers offered competent testimony from two disinterested witness, we examine whether this evidence was admissible on the question of value, not whether we find it persuasive. The expert testimony offered by the taxpayers in this case was based on sales of properties that were used for restaurant purposes, but not for fast-food, franchise restaurants. We conclude this evidence was admissible and competent. Because other properties need not be identical to qualify as comparable, we think it follows that the use of other properties need not be identical. Here, a restaurant use is sufficiently similar to a fast-food, franchise restaurant use to be considered comparable. Nonetheless, a difference in use does affect the persuasiveness of such evidence because as differences increase the weight to be given to the sale price of the other property must of course be correspondingly reduced. Bartlett & Co. Grain, 253 N.W.2d at 93; accord Crozier, 165 N.W.2d at 835. In other words, all else being equal, evidence of sales of nonfranchise restaurant properties is not as probative of the value of franchise-restaurant property as is evidence of sales of other franchise-restaurant properties. Blanchfield used four sales in his comparable-sales analysis. The properties that were the subject of these sales were located in Charles City, Fort Dodge, Storm Lake, and Marshalltown, Iowa, and all had buildings originally used as franchise restaurants. Three of the properties were sold for use as nonfast-food, franchise restaurants and the fourth property was sold to a bank that tore down the restaurant building and replaced it with a bank building. Blanchfield made adjustments to the sales prices of these properties based on differences in access, building age and condition, building quality, site improvements, and land-to-building ratio. The adjusted sales prices of these properties indicated a market value of the Soifers' property within a range of $197,966 to $244,178. Stating he placed greatest weight on sales one and four, Blanchfield concluded the subject property had a value of $230,000. He testified his conclusion was supported by his cost analysis that resulted in a market value of $232,000. Realtor Parsons also used a comparable-sales approach. She concluded the Soifers' property had a market value of $217,500 based on her analysis of sales of other commercial properties in Charles City. Parsons testified to the differences between the other commercial properties and the Soifers' property and the impact of those differences on the value of the subject real estate. She did not, however, explain the calculations she employed to determine a market value nor did she otherwise quantify any adjustments she made to the sales prices of the other properties to reach a market value for the Soifers' property. We conclude Blanchfield and Parsons complied with the statutory scheme for property valuation for tax assessment purposes in offering opinions on the value of the Soifers' property based on the comparable-sales approach and that the comparable properties upon which they relied were sufficiently similar to support admission of their testimony. Because the taxpayers introduced competent evidence by two disinterested witnesses that the market value of the subject property is less than the market value determined by the assessor, the burden shifts to the Board to uphold the assessed value. Boekeloo, 529 N.W.2d at 277.