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Appraising for the Tax Court By Charles E. Blau, Esq. IFAC National Association of Independent Fee Appraisers 2012 National Conference Secaucus, New Jersey.

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Presentation on theme: "Appraising for the Tax Court By Charles E. Blau, Esq. IFAC National Association of Independent Fee Appraisers 2012 National Conference Secaucus, New Jersey."— Presentation transcript:

1 Appraising for the Tax Court By Charles E. Blau, Esq. IFAC National Association of Independent Fee Appraisers 2012 National Conference Secaucus, New Jersey

2 Appraisers Role Assist the Trier of Fact Your appraisal may be brilliant, but if you are unable to assist the Judge in understanding how you got to your value you have failed as a witness.

3 Sure you have a great resume are honest and a nice guy, so the judge should just believe you. ( the other guy has a great resume too) Facts: An experts opinion raises no higher than the facts.

4 Whats wrong with this write-up? Sale Number 1 Location:319 Self Place, Orange, New Jersey Block/Lot: 45/11 Grantor:James Tinkers Grantee:Evers Chance Date of Sale:July 4, 2010 Book/Page:4511/23 Sale Price:$550,000 Lot Size (SF): 4,500 Zoning:Commercial Building Size (SF):3,332 Verification:Deed Description:One story and basement store Sale Price/SF:$165.07

5 Whats wrong with this write-up? Sale Number 2 Location:45 Main Street, Orange, NJ Grantor:Robert Zimmerman Block/Lot: 55/19 Grantee:Richard Starkey Date of Sale:August 8, 2009 Book/Page:N.A. Sale Price:$970,000 Lot Size (SF): 8,500 Zoning:Commercial Building Size (SF):6,500 Verification:Assessor Description:One story commercial in inferior condition compared to subject. Sale Price/SF:$149.23

6 Whats wrong with this write-up? Sale Number 3 Location:6 Webster Place, Bogota, New Jersey Block/Lot: 123C/19 Grantor:James Madison Grantee:Dolly Madison Date of Sale:March 4, 2010 Book/Page:4521/211 Sale Price:$250,000 Lot Size (SF): 7,500 Zoning: Commercial Building Size (SF):5,500 Land To Bldg. Ratio1.36:1 Verification:Benedict Arnold Description:Industrial Sale Price/SF:$ Webster Place, Bogota, New Jersey

7 What Does Verify Mean? Assessor Deed Broker Buyer/Seller

8 What Does Verify Mean? Deed Abstract (SR-1A) Attorney Appraiser

9 Non Useable Sales NU 6 –Sales of only a portion of the assessed unit NU 7 – Substantially improved after assessment NU 10 – Sale by Guardian, Trustee, etc. NU 23 – includes machinery, fixtures NU 26 - Some Other Reason

10 Non Useable Sales NU 31 First Sale after foreclosure According to The Appraisal Foundations Appraisal Practices Board Valuation Advisory issued May 7, 2012

11 Some think using comparable sales that were bank owned properties or short sales, should be precluded as comparable sales.

12 The Appraisal Foundation says that while this may be possible in some markets, this cannot be done in many other markets. There are markets were nearly all sales are bank-owned, short sales or other financially distressed sellers.


14 Comparable Sales All of your adjustments make sense, but what if conclusion doesnt? Smell Test. Adjustments against your interest. Cant prove be conservative.

15 Photos Google earth Not there? Interiors? Consistency

16 USPAP You care, but no one else does.

17 Appraisal Report Make it easy to follow Addenda Reference page numbers as you talk Wait until everyone on same page

18 Sales Comparison Approach Income Property without knowledge of income and expenses Magnitude of Adjustments As a check

19 I was told I cant use that Dont Reject Your Own Sales

20 Sale of Subject Should be the end of the story but often isnt. Other side will do its best to discredit the sale if it hurts them. You should try to prove that it meets the definition of market value.

21 Date of Sale Towns will often tell you that the sale must be before October 1, of the pre tax year. Best that most of your sales are before October 1.

22 Date of Sale Ok if some of the sales are after. When was contract? Was it on market before October 1 st ?

23 What is a comparable Sale? Does the sale meet the definition of market value? Was it exposed to the market? Was there a broker? Was the seller under duress? Was there unusual financing? Does the sale have the same highest and best use as the subject property?

24 Assumptions and Boilerplate What if assumption is wrong, would it change your conclusion? Read your boilerplate

25 Support for Adjustments Paired sales Market Studies …after years and years of experience and discussions with those knowledgeable in the market…

26 Experience I believe the bright 17 year old high school student in elementary astronomy can do a better job estimating the distance to the moon than the old man of the mountains who has looked at the moon for 80 years. I would not give a red cent for an appraisal by the expert who beats his breast and shouts: I don't have to give reasons. I've had 40 years experience in this business.

27 Demonstrative Evidence Sale 3 You can say that the Property is in poor condition

28 Or

29 Theme of the Case What is it? Dont let it get lost in the sauce

30 Lease Summary LocationLandlordTenantBldg.Expenses$/Sf 45 MainEiasonNamathOfficeNet $15/sf 19 CentralParcellsMarraCommercialModified Gross$13.50/sf 49 MainKranepoolHarrelsonOfficeNet Net Net$14/sf 50 CentralLasserCrabtreeOfficeNet$22/sf

31 Economic Rent Economic Rent in New Jersey (Market Rent) Controls. Terms Adjustments Photos Concessions Source Tenant Improvements

32 Vacancy Rate Stabilized Support Studies 10 year history

33 Capitalization Rate You must have some support for your cap rate. Band of Investment - based on what? ACLI, Korpacz, Real Estate Research Corp, other Market Derived. Not based on your experience. or the usual.

34 Expenses The Tax Court examines expense very critically. The courts are very suspicious if you examine only the current years expenses. Expenses can vary dramatically from year to year. Therefore you should examine at least 3 years and stabilize the the expenses to predict a typical year.

35 Cost Approach Dont use it unless it really applies. And then you better do it right. First sign you didnt do it at all is everything ends in a zero. Dont just add site value. Just because its on your form you dont need to do it.

36 What else do you need to know besides your Appraisal? Appraisal Theory USPAP A little law of Tax Appeals in your Jurisdiction Valuation Date Leased Fee v Fee Simple

37 Other Things to Remember Know your weak spot, it will be attacked What if you have a great comp, but cant verify it when you write your appraisal?

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