Opinion ID: 2066162
Heading Depth: 3
Heading Rank: 2

Heading: Consideration of Income Approach

Text: Relator also argues the tax court clearly erred when it decided to place little weight upon the income approach in this case. We recognize three traditional approaches to determining the market value of real estate: 1) the market comparison, based on the prices paid for comparable properties in market transactions; 2) the cost approach, founded on the proposition that an informed buyer would pay no more for the property than the cost of building a new property with the same utility as the subject property; and 3) the income approach, predicated on the capitalization of the income the property is expected to generate. American Express Fin. Advisors, 573 N.W.2d at 657. Whenever possible, the tax court should apply at least two approaches in determining market value. Id. However, we afford the tax court broad discretion in deciding which valuation approach to use. See Evans v. County of Hennepin, 548 N.W.2d at 278; see also Lewis & Harris v. County of Hennepin, 516 N.W.2d 177, 180 (Minn.1994) (Whatever weight priority may usually attach to each approach, the priority and quantum of reliance depends on the facts of each case.). Both appraisal reports considered the subject property under all three traditional approaches (market comparison, cost, and income). When considering the income approach, respondent's expert, Herman, utilized four rent comparables, and relator's expert, Atchinson, utilized 15 comparables. Only four of the rent comparables considered by the two appraisal experts were greater than 10,000 square feet in size. Of those four, only one had a lease that had been negotiated after 1992. The tax court decided that nearly all of the rent comparables submitted by both Herman and Atchinson were poor comparisons to the subject property. The tax court then concluded that there was little current market evidence to support the appraisers' estimates of economic rent during the years in question, and thus elected to rely on the market comparison and cost approaches. This decision was consistent with review appraiser Dennis Jabs' critique of the bank comparables used in Atchinson's appraisal report. Relator's attempt to demonstrate clear error by pointing to these same bank comparables, as well as two other bank properties it located after the trial had already concluded, is not persuasive. While we are aware of the importance of the income approach to valuations of Twin Cities-area commercial properties in general, we are not prepared to conclude, based upon the evidence in the record, that the tax court's exercise of its broad discretion to determine the weight that should be placed on each of the three valuation approaches was clearly erroneous.