Opinion ID: 2261399
Heading Depth: 1
Heading Rank: 2

Heading: Appraisal Method

Text: This case presents a question almost identical to one we addressed in Frank v. Assessors of Skowhegan, Me., 329 A.2d 167 (1974). There, as here, the reproduction cost less depreciation method of appraisal was employed uniformly in revaluing all real property (in Skowhegan), including residential, commercial and industrial land and buildings. There the taxpayer argued that the assessors violated their obligation to assess justly and equally when they assessed his income-producing property by the cost method to the exclusion of the capitalization of income approach. He argued that the lower court's refusal to give any weight to his evidence of the income approach was error of law. Id. at 174. Shawmut Inn's complaint is much the same in the present case. Its argument is that if the expert appraisers had valued its property by more than one appraisal method and then correlated the results, they would have found the value calculated by the cost approach to be excessive. The taxpayer further argues that the sale of corporate stock in the Inn only three days after the tax valuation date at a price which reflected a total value less than half the assessed value is proof that the appraisal method was invalid and the assessment was unjust. The significant difference here is that the mass revaluation of all the property in Kennebunkport was not done by the town assessors, but by a professional appraisal firm. That firm's valuations were then adopted by the local assessors. In our State the tax assessors are under both a constitutional and statutory obligation to determine the just value of taxable property. Me.Const., art. 9, § 8 [1] , 36 M.R.S.A. § 201. [2] Just value is the equivalent of market value. Sweet, Inc. v. City of Auburn, 134 Me. 28, 180 A. 803 (1935); Frank v. Assessors of Skowhegan, supra, 329 A.2d at 173. Although the Legislature has established minimum assessing standards with which the assessors must comply, 36 M.R.S.A. § 327, it has stopped short of setting forth in the statutes the different methods which local assessors may utilize to achieve such results. 36 M.R.S.A. § 326. [3] Likewise, this Court has permitted the local assessors considerable leeway in choosing the method or combinations of methods to achieve just valuations. We have found acceptable as techniques to aid local assessors at least three standard appraisal methods of determining the market value of real property: (1) the comparative or market data approach, (2) the income or capitalization approach, and (3) the reproduction cost less depreciation or cost approach. See, e. g., Sweet, Inc. v. City of Auburn, 134 Me. 28, 32, 180 A. 803, 804 (1935); Kittery Electric Light Co. v. Assessors of the Town of Kittery, Me., 219 A.2d 728, 737 (1966); see generally Comment, The Road to Uniformity in Real Estate Taxation: Valuation and Appeal, 124 U.Pa. L.Rev. 1418, 1430-40 (1976). Theoretically, all three methods are employed in any appraisal, but often only one or two are useful or even usable in a given appraisal, depending upon its nature and purpose. See Maine Bureau of Taxation Assessment Manual 7-9 (rev. ed. Nov. 1977). In Frank v. Assessors of Skowhegan, supra , we affirmed the Superior Court's decision that in revaluing all the property in Skowhegan, the local assessors' use of the single cost method was not unreasonable. We did so even though we recognized that the single method may not render the most accurate figure for market value for every piece of property. We concluded that the cost approach was well suited to the need of a municipality to have a stable income: It seems to us plaintiff, in effect, is saying that a willing purchaser will pay for income-producing property only that price which is justified by the income produced at or just prior to the time of purchase. Income from rental property is peculiarly subject to the influence of temporary general economic conditions. If we carry, what seems to be plaintiff's argument, to its logical conclusion, tax assessors would be required to down value income-producing property each time there is even a temporary economic decline. We cannot accept this reasoning. Stability in municipal income is a factor which must always be considered. To require owners of property which is not income-producing to pick up the deficiency resulting from reducing the tax burden of income property owners each time there is a temporary downward trend in the economy, would surely not be either feasible or equitable. The assessors ought not be required to treat this plaintiff differently because his property is not for the time being producing the rate of return on his investment which was anticipated. ... assessors should recognize that the true value of a fixed asset, such as real estate, is fairly constant and must be gauged by conditions, not temporary and extraordinary, but by those which over a period of time will be regarded as measurably stable. Sweet, Inc. v. City of Auburn, 134 Me. at 32, 180 A. at 804. Id. at 175. [4] Our decision to allow the single cost approach in Frank was also based in part upon recognition that the general revaluation in Skowhegan was performed by semiskilled local assessors. We stressed that in carrying out their constitutional duty to assess all property fairly and according to just value, the local assessors must rely to a certain degree upon guesswork and estimation: In actual practice assessors are not always men of special training or skills, especially in the smaller cities and towns. They are public officers who usually bring to their job the intelligence, experience, and judgment of ordinary individuals whose knowledge of property values derives from their having lived and moved and had their being in the community the property of which they are evaluating. Frank v. Assessors of Skowhegan, supra at 171. [5] Nonetheless, contrary to Kennebunkport's argument here, Frank does not stand for the proposition that the use of the single cost approach in valuing income-producing property will always be acceptable. In the first place, in terms of any particular piece of property, use of this single approach could result in an unjust valuation, particularly since the cost approach may render the highest valuation figure of the three standard appraisal methods. G.R.F., Inc. v. Board of Assessors, 41 N.Y.2d 512, 514, 393 N.Y.S.2d 965, 362 N.E.2d 597, 599 (1977). Where the single method is found to have led to an unjust valuation, it will not be accepted, and the assessors will have to resort to an alternate approach. Frank v. Assessors of Skowhegan, supra, 329 A.2d at 175. In the second place, where, as here, the local assessors have contracted with professional appraisers, the taxpayer may rightly expect the value placed on his taxable property to be computed by means of more sophisticated appraisal techniques. In the third place, as the local assessors become more highly skilled through the certification and training procedures now mandated by our Legislature, it well may be that we must evaluate the accuracy of their work by a higher standard than we have applied in the past. Generally accepted appraisal practice recognizes a process known as correlation as the best mechanism for obtaining an accurate figure for market value. To correlate, an appraiser must calculate value by two or more appraisal methods and then weigh the factors used in arriving at each value to determine which method best reflects the market value. [6] See Medical Building Land Company v. Department of Revenue, 283 Or. 69, 71-73, 582 P.2d 416, 418-419 (1978); Petition of Mallory, 127 Vt. 412, 419, 250 A.2d 837, 841 (1969). It is not for us to mandate the use of any single appraisal method in valuing commercial or any other taxable property. We do not adopt Shawmut Inn's argument, for instance, that the cost approach is not suitable for valuing commercial property. It is for the local assessors or professionals hired by them to determine in the first instance the best method or methods of arriving at a just value in compliance with the Constitution and laws of this State. We do, however, expect professional assessors or appraisers hired by the local assessors to utilize the scientific appraisal techniques developed by their profession. We conclude, therefore, that where professional appraisers choose the cost approach as a starting point for a general revaluation, they should use other appraisal methods as checks in testing the reasonableness of such values as may appear questionable. The process of correlation can be particularly useful in valuing a commercial property like the Shawmut Inn. It is well settled that the petitioner for an abatement of taxes has the burden of showing that the assessment method is not in conformity with the law. Farrelly v. Inhabitants of the Town of Deer Isle, supra at 306. In the case before us, we are unable, unfortunately, to evaluate the work done by the professionals from Whipple-Magane-Darcy Inc. No one from that firm was produced as a witness at the hearings before the York County Commissioners. The only evidence on the valuation method that firm may have used came from the Town's witness, Scrontras. He testified that from his examination of the Assessors' Cards prepared by them it was his conclusion that the appraisal firm employed only the cost approach. Nevertheless, this witness was examining only the end product of Whipple's appraisal work. The Assessors' Cards do not tell us whether the professional correlated the values of more than one appraisal method before arriving at a final valuation. It is possible that the appraisal firm correlated and chose the cost value as representative of market value, even as the cost approach was chosen by the Town's witness, Scrontras, over the income and market approaches. The cost approach is not per se unsuitable for valuing commercial property. Without knowing the process by which the appraisal firm chose to value the Shawmut Inn property at cost less depreciation, we cannot say that the process failed to conform to the requirements of the law. [7] Even though local assessors may hire professionals to calculate property values, the constitutional obligation to assess according to just value still rests with the assessors. Where the assessors adopt in toto the professionals' valuation recommendations, they in effect adopt the methods by which the appraisers reached their conclusions. This is the argument pressed by Shawmut Inn in its attack upon the valuation which the Kennebunkport assessors placed on its property. Significantly, however, the ultimate valuation being challenged on this appeal was a figure to which the local assessors reduced Shawmut Inn's valuation. The Inn, therefore, must establish that the method or methods used at arriving at the ultimate valuation do not pass constitutional and statutory muster. [8] It is imperative that local assessors keep themselves informed as to the methods used by the professionals they hire, and that they use their own knowledge of local conditions to check the accuracy of the professional appraisers' recommendations. Even though the Kennebunkport assessors initially accepted the values recommended by the Whipple firm for the Shawmut Inn property, when the Plaintiff petitioned for a tax abatement, the assessors went to the site and examined the land and buildings of Shawmut Inn, checking for themselves the valuations listed on each of the Assessors' Cards. They then reduced the valuation per acre on the golf course from $12,000 to $5,000 and deducted 25% from the value of another section of land because of a restrictive covenant which the professionals had apparently overlooked. They granted a reduction in valuation totaling $125,000. We cannot conclude that the appraisal method used here was inherently discriminatory where the assessors checked the recommended valuations against their own independent knowledge of the community's property values and granted reductions in valuation where they found the figures excessive. We find no evidence of a conscious failure to exercise a fair and impartial judgment, or a conscious resort to arbitrary methods, different from those employed in assessing other property of like character and situation, thereby resulting in imposing an unequal burden on property . . . . Farrelly v. Inhabitants of the Town of Deer Isle, supra, 407 A.2d at 307. In sum, Shawmut Inn has failed to sustain its burden of proving that the system by which the assessment was made violated the principle of equality mandated by the Maine Constitution.