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The
Appraisal
Journal
SPRING 2018
Volume LXXXVI, Number 2
F Appraisers
in Arbitration:
What Areas of Service Might
Valuers Provide?
by Paula K. Konikoff, JD, MAI, AI-GRS
PAGE 109
Alternative Measures to
Improve Demand Forecasts
by Emil Malizia, PhD, and Andrew Malizia
PAGE 117
sing the Income Approach
U
for Minority Interests
by Dennis A. Webb, MAI
PAGE 125Contents
The Appraisal Journal | Spring 2018 | Volume LXXXVI, Number 2
ii Mission Statement
iv A Message from the Editor-in-Chief
v Appraisal Journal Awards
COLUMNS & DEPARTMENTS
99 Cases in Brief
Recent Court Decisions on Real Estate and Valuation
by Scott B. Mueller, JD
137 Resource Center
2018 Trends Underway
by Dan L. Swango, PhD, MAI, SRA
149 Book Review
A Review of M. Gordon Brown’s Access, Property and American Urban Space
by P. Barton DeLacy, MAI, SRA, AI-GRS
153 Letters to the Editor
PEER-REVIEWED ARTICLES
109 Appraisers in Arbitration: What Areas of Service Might Valuers Provide?
by Paula K. Konikoff, JD, MAI, AI-GRS
117 Alternative Measures to Improve Demand Forecasts
by Emil Malizia, PhD, and Andrew Malizia
125 Using the Income Approach for Minority Interests
by Dennis A. Webb, MAI
ANNOUNCEMENTS
155 Appraisal Institute Publications
157 Appraisal Institute Designations
158 Article Topics in Need of Authors
159 Manuscript Guide
160 Appraisal Journal Order Form
Cover Photo: Shutterstock.com
www.appraisalinstitute.org Spring 2018 • The Appraisal Journal iThe Appraisal Journal
Published by the Appraisal Institute
James L. Murrett, MAI, SRA, President
Stephen S. Wagner, MAI, SRA, AI-GRS, President-Elect
Jefferson L. Sherman, MAI, AI-GRS, Vice President
Jim Amorin, MAI, SRA, AI-GRS, Immediate Past President and Acting CEO
Stephen T. Crosson, MAI, SRA, Editor-in-Chief
Ken Chitester, APR, Director of Communications
Nancy K. Bannon, Managing Editor
Justin Richards, Senior Communications Coordinator
The Appraisal Journal (ISSN 0003-7087) is published quarterly (Winter, Spring, Summer, and Fall). © 2018 by the Appraisal Institute, an Illinois Not-for-Profit Corporation
at 200 W. Madison, Suite 1500, Chicago, Illinois 60606. www.appraisalinstitute.org. All rights reserved. No part of this publication may be reproduced, modified, rewritten,
or distributed, electronically or by any other means, without the expressed written permission of the Appraisal Institute.
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The Appraisal Journal, 200 W. Madison, Suite 1500, Chicago, Illinois 60606. Allow six weeks for changes. To opt out of print copy delivery, email taj@appraisalinstitute.org
Design and production services provided by Grayton Integrated Publishing. www.graytonpub.com
Mission Statement: The Appraisal Journal is published to provide a peer-reviewed forum for information and ideas on the practice and theory of valuation and analyses
of real estate and related interests. The Appraisal Journal presents ideas, concepts, and possible appraisal and analytical techniques to be considered; some articles are
for the development and expansion of appraisal theory while others are useful in the evolution of practice.
Disclaimer: The materials presented in this publication represent the opinions and views of the authors. Although these materials may have been reviewed by members
of the Appraisal Institute, the views and opinions expressed herein are not endorsed or approved by the Appraisal Institute as policy unless adopted by the Board of
Directors pursuant to the Bylaws of the Appraisal Institute. While substantial care has been taken to provide accurate and current data and information, the Appraisal
Institute does not warrant the accuracy or timeliness of the data and information contained herein. Further, any principles and conclusions presented in this publication
are subject to court decisions and to local, state, and federal laws and regulations and any revisions of such laws and regulations.
This publication is for educational and informational purposes only with the understanding that the Appraisal Institute is not engaged in rendering legal, accounting,
or other professional advice or services. Nothing in these materials is to be construed as the offering of such advice or services. If expert advice or services are required,
readers are responsible for obtaining such advice or services from appropriate professionals.
Nondiscrimination Policy: Organized in 1932, the Appraisal Institute advocates equal opportunity and nondiscrimination in the appraisal profession and conducts
its activities in accordance with applicable federal, state, and local laws.
The Appraisal Institute advances professionalism and ethics, global standards, methodologies, and practices through the professional development of property
economics worldwide.
ii The Appraisal Journal • Spring 2018 www.appraisalinstitute.orgThe Appraisal Journal Editorial Board Stephen T. Crosson, MAI, SRA,* Chair, Dallas, Texas Joseph F. Consoli, MAI, Baltimore, Maryland Karl P. Finkelstein, MAI, Mt. Pleasant, South Carolina Julie Friess, SRA, Sedona, Arizona Walter E. Gardiner, SRA, AI-RRS, Hammond, Louisiana James H. Martin, MAI, Mt. Pleasant, South Carolina Heather M. Placer, MAI, SRA, Midlothian, Virginia Stephen D. Roach, MAI, SRA, AI-GRS, San Diego, California Larry T. Wright, MAI, SRA, AI-GRS, Houston, Texas The Appraisal Journal Review Panel Gregory J. Accetta, MAI, AI-GRS, Providence, Rhode Island Melanie Sieger, MAI, AI-GRS, Chevy Chase, Maryland Anthony C. Barna, MAI, SRA, Pittsburgh, Pennsylvania Dan L. Swango, PhD, MAI, SRA, Tucson, Arizona C. Kevin Bokoske, MAI, AI-GRS, AI-RRS, Ft. Lauderdale, Florida James D. Vernor, PhD, MAI, Atlanta, Georgia Robert C. Clark, MAI, Chevy Chase, Maryland George Dell, MAI, SRA,* San Diego, California The Appraisal Journal Academic Review Panel Larry O. Dybvig, MAI, Vancouver, British Columbia Tim Allen, PhD, Florida Gulf Coast University Timothy A. Eisenbraun, MAI, SRA, Southfield, Michigan Anjelita Cadena, PhD, University of North Texas Stephen F. Fanning, MAI, AI-GRS,* Denton, Texas Peter F. Colwell, PhD, University of Illinois Kenneth G. Foltz, MAI, SRA, Wilmington, North Carolina François Des Rosiers, PhD, Laval University Jack P. Friedman, PhD, MAI, SRA, Chicago, Illinois Barry A. Diskin, PhD, MAI, AI-GRS, Florida State University Brian L. Goodheim, MAI, SRA, Boulder, Colorado Donald R. Epley, PhD, MAI, SRA, University of South Alabama Robert M. Greene, PhD, MAI, SRA, AI-GRS, Olympia, Washington Jeffrey D. Fisher, PhD, Indiana University Thomas O. Jackson, PhD, MAI,* College Station, Texas Terry V. Grissom, PhD,* University of Missouri–Kansas City John A. Kilpatrick, PhD, MAI, Seattle, Washington Thomas W. Hamilton, PhD, MAI,* Roosevelt University S. Warren Klutz III, MAI, SRA, AI-GRS, Bristol, Tennessee William G. Hardin III, PhD, Florida International University Douglas M. Laney, MAI, Tucson, Arizona Mark Lee Levine, PhD, JD, MAI, University of Denver Calvin M. Lassere, MAI, Atlanta, Georgia Kenneth M. Lusht, PhD, MAI, SRA,* Florida Gulf Coast University, David C. Lennhoff, MAI, SRA, AI-GRS, Darnestown, Maryland Penn State University Mark R. Linné, MAI, SRA, AI-GRS, Lakewood, Colorado Barrett A. Slade, PhD, MAI, Brigham Young University Mark E. Mitchell, MAI, Louisville, Kentucky Brent C Smith, PhD, Virginia Commonwealth University Dan P. Mueller, MAI, St. Paul, Minnesota Mark A. Sunderman, PhD, University of Memphis Nathan Pomerantz, MAI, Rehovot, Israel Grant I. Thrall, PhD, University of Florida Rudy R. Robinson III, MAI, Austin, Texas Alan Tidwell, PhD, Columbus State University Dennis P. Ryan, PhD, MAI, New York, New York H. Shelton Weeks, PhD, Florida Gulf Coast University David J. Sangree, MAI, Cleveland, Ohio John E. Williams, PhD, Morehouse College John A. Schwartz, MAI, Aurora, Colorado Elaine M. Worzala, PhD, College of Charleston *Statistics Work Group member www.appraisalinstitute.org Spring 2018 • The Appraisal Journal iii
From the Editor-in-Chief
Stephen T. Crosson, MAI, SRA
Thought Leadership
Dear Readers:
Each year, the Spring issue of The Appraisal Jour- demonstrates how adding the discounted cash
nal recognizes exceptional work within this flow model to the conventional net asset value
forum for ideas on real estate valuation, and on method can enhance valuations of undivided
the following pages you will see the announce- interests in real estate.
ment of our 2017 article awards. It is important
that we pause and acknowledge these outstand- This issue also includes a “2018 Trends Under-
ing articles and their authors. In addition, we way” edition of the Journal’s popular Resource
recognize the outstanding service of Julie Friess, Center column. This column discusses the eco-
SRA, who during the past year has contributed nomic and real estate trend forecasts of promi-
valuable volunteer hours to the Journal as a mem- nent real estate industry participants. The
ber of The Appraisal Journal Editorial Board. column also offers a primer on the cryptocurren-
cies currently in the news and offers helpful
We also have three peer-reviewed feature articles resources for digging deeper on this topic.
in this issue aimed at enhancing the services of
professional appraisers. The cover article, We appreciate the dedication of all who have
“Appraisers in Arbitration: What Areas of Ser- contributed to The Appraisal Journal’s peer review
vice Might Valuers Provide?” explains the differ- process as well as the authors who have shared
ent roles that an appraiser may play in an their knowledge with our readers. As always, we
arbitration and distinguishes the responsibilities welcome your comments regarding any aspect of
related to each role. The second article, “Alter- The Appraisal Journal.
native Measures to Improve Demand Forecasts,”
illustrates how appraisers may use indexes to Stephen T. Crosson, MAI, SRA
better forecast employment growth as part of Editorial Board Chair and Editor-in-Chief
their market analysis. The third article, “Using The Appraisal Journal
the Income Approach for Minority Interests,”
iv The Appraisal Journal • Spring 2018 www.appraisalinstitute.orgAppraisal Journal Outstanding Service Award
For Exceptional Commitment in 2017
Julie Friess, SRA
Julie Friess, SRA, is the winner of The Appraisal Journal’s 2017 Out-
standing Service Award. This award recognizes the member of The
Appraisal Journal’s Editorial Board, Review Panel, or Academic
Review Panel who during the previous year has shown exceptional
commitment to The Appraisal Journal through outstanding service.
Friess is principal and senior vice president of the valuation firm
Sedona Appraisal Research Associates, LLC, with offices in
Sedona, Arizona, and Ft. Lauderdale, Florida. Friess has over thirty
years of valuation experience and is a licensed certified appraiser in
Arizona and Florida, with assignments divided between Northern
Arizona and South Florida. Her practice focuses on residential
properties and offers consulting services in the areas of litigation
support, loss mitigation, negotiation, buybacks, quality control,
regulatory compliance, risk assessment, repurchase demand rebut-
tals, complex properties, and field and desk reviews. In addition,
she develops and instructs courses for real estate appraisers and
valuation-related entities. She is an AQB-certified USPAP instruc-
tor, and a frequent presenter at programs and conferences.
Friess is an SRA Designated Member of the Appraisal Institute,
and a Candidate for Designation for the AI-RRS designation.
Friess is a member of The Appraisal Journal Editorial Board and the
Appraisal Institute’s Diversity Panel. She also serves on the board
of directors of the South Florida Chapter of the Appraisal Institute
and as a Region X representative. She is a past president of the
Coalition of Arizona Appraisers, and a past board member of the
Arizona Association of Real Estate Appraisers.
Friess holds a bachelor of science in finance from SUNY-Buffalo
and a master’s degree in clinical psychology from North Central
University.
www.appraisalinstitute.org Spring 2018 • The Appraisal Journal vArmstrong/Kahn Award
Most Outstanding Article of 2017 • Sponsored by the Appraisal Institute Education and Relief Foundation
Winning Article:
“Market Equilibrium Analysis”
Richard L. Parli, MAI, and Norman G. Miller, PhD, are the winners
of the 2017 Armstrong/Kahn Award for their article, “Market
Equilibrium Analysis,” published in the Fall 2017 issue of The
Appraisal Journal.
The Armstrong/Kahn Award is presented by The Appraisal Jour-
nal’s Editorial Board for the most outstanding original article
published in The Appraisal Journal during the previous year. Arti-
cles are judged on the basis of pertinence to appraisal practice;
contribution to the valuation literature; provocative thought;
thought-provoking presentation of concepts and practical prob-
lems; and logical analysis, perceptive reasoning, and clarity of
presentation.
In “Market Equilibrium Analysis,” Parli and Miller explore mar-
ket equilibrium and offer a new definition identifying stable rental
rates as the key indicator of market equilibrium. They expand on
Richard L. Parli, MAI the equilibrium concept by offering a second new definition—
equilibrium vacancy—as the rate that produces stable rents. They
demonstrate how knowledge of equilibrium vacancy may be used
to forecast when vacancy will produce a change in rent.
Richard L. Parli, MAI, is president of Parli Appraisal, Inc., in
Fairfax, Virginia. He has been involved in the development of
several courses and seminars for the Appraisal Institute and is a
professional faculty member of the Johns Hopkins Carey Graduate
School of Business. He has an MBA in finance from the Pennsyl-
vania State University and is a principal member of the Real Estate
Counseling Group of America.
Norman G. Miller, PhD, the Ernest Hahn Chair of Real Estate
Finance at the University of San Diego (USD) and part of the
USD’s Burnham-Moores Center for Real Estate. He works with
Collateral Analytics, developing real estate analytic products and
tools to support financial institutions and investors. He was vice
president of analytics for the CoStar Group, and prior to joining
Norman G. Miller, PhD USD, he was academic director and the founder of the real estate
program at the University of Cincinnati. He received his PhD
from the Ohio State University. Miller has published numerous
academic articles, books and articles in trade market publications
vi The Appraisal Journal • Spring 2018 www.appraisalinstitute.orgArmstrong/Kahn Award on housing, brokerage, mortgage risk, valuation, sustainable real estate and many other topics. His book, Commercial Real Estate Analysis and Investment, with David Geltner at MIT, is in its third edition and is the world’s leading graduate-level real estate text- book. He has lectured around the world from France to Singapore, Thailand, New Zealand, and Russia. He has worked extensively with various trade associations and became one of the first “Distin- guished Fellows” of the NAIOP. He is currently a Homer Hoyt Land Use Institute faculty and board member. To read the award-winning article, go to http://bit.ly/TAJarticles. www.appraisalinstitute.org Spring 2018 • The Appraisal Journal vii
Swango Award
Best Article by a Practicing Appraiser in 2017 • Sponsored by the Appraisal Institute Education and Relief Foundation
Winning Article:
“The 50% FEMA Rule Appraisal”
Patricia Staebler, SRA, is the winner of the 2017 Swango Award for
her article, “The 50% FEMA Rule Appraisal,” published in the
Fall 2017 issue of The Appraisal Journal.
The Appraisal Journal’s Editorial Board presents the Swango
Award to the best article published during the previous year on
residential, general, or technology-related topics, or for original
research of benefit to real estate analysts and valuers. The article
must be written by an appraisal practitioner. Articles are judged
based on practicality and usefulness in addressing issues faced by
appraisers in their day-to-day practice; logical analysis, perceptive
reasoning, and clarity of presentation; and soundness of method-
ology used, especially in an area of original research.
In “The 50% FEMA Rule Appraisal,” Staebler discusses the unique
aspects of appraisals of properties along coastlines and in flood
zones, as regulated by the Federal Emergency Management Agency
Patricia Staebler, SRA (FEMA). These 50% FEMA Rule appraisals provide building own-
ers an understanding of how much money they are permitted to
spend to improve or repair grandfathered structures without trigger-
ing compliance issues with the latest FEMA standards. The article
outlines the components that should and should not be incorpo-
rated in the appraisal, as well as common errors in FEMA appraisals.
Patricia Staebler, SRA, concentrates her practice on the valua-
tion of construction, including insurance replacement valuation,
reserve studies, cost segregation analysis, and the 50% FEMA Rule
appraisal. Her work in her family’s engineering office as a cost esti-
mator, together with experience as an insurance claims adjuster and
commercial appraiser, gives her a unique background as an expert
in these fields. Staebler authors and teaches state-approved CEU
classes in Florida for licensed community association managers and
local chapters of the Appraisal Institute. She is the developer and
presenter of the Appraisal Institute’s webinars, 50% FEMA
Appraisal Rule and Insurance Replacement Valuation. She has pub-
lished articles in Community, the official journal of the Community
Association Institute, West Florida Chapter; Working RE; The
Appraisal Journal; and The SunState Post. Staebler currently serves
on the Board of Directors for the Florida Gulf Coast Chapter of the
Appraisal Institute and is chair of the chapter’s Bylaws Committee.
To read the award-winning article, go to http://bit.ly/TAJarticles.
viii The Appraisal Journal • Spring 2018 www.appraisalinstitute.orgRichard U. Ratcliff Award
Best Article by an Academic in 2017 • Sponsored by the Appraisal Institute Education and Relief Foundation
Winning Article: “Appraisal
of Residential Water View Properties”
Chris Mothorpe, PhD, and David Wyman, PhD are the winners of
the 2017 Richard U. Ratcliff award for their article, “Appraisal of
Residential Water View Properties,” published in the Spring 2017
issue of The Appraisal Journal.
The Richard U. Ratcliff Award is presented annually for the best
original article published in The Appraisal Journal written by an
academic author. Articles are judged on the basis of pertinent
appraisal interest, provocative thought, logical analysis, percep-
tive reasoning, clarity of presentation, and overall contribution to
the literature of valuation. To be eligible for this award, an article
must have been peer reviewed by members of The Appraisal Jour-
nal’s Academic Review Panel and the principal author must be
primarily engaged in teaching at a college or university.
In “Appraisal of Residential Water View Properties,” Mothorpe
and Wyman offer a replicable GIS-based analytical tool that may
assist appraisers in estimating the marginal price effects of high- Chris Mothorpe, PhD
er-quality views. They employ water view area as a standardized,
objective measure of view quality. The study results suggest that
water view area correlates with view quality, as indicated by
increased price premiums, with a 1% marginal increase in view area
for waterfront properties resulting in a sale price premium of 3.85%.
Chris Mothorpe, PhD, is an assistant professor of economics at
the College of Charleston. Mothorpe earned a PhD from Georgia
State University. Mothorpe’s research interests include urban and
public economics with a focus on the evaluation of spatial ameni-
ties and public goods. Mothorpe has previously published work in
Real Estate Economics, The Annals of Regional Science, Journal of
Real Estate Research, and Regional Science and Urban Economics.
David Wyman, PhD, is an assistant professor of economics and
director of the Center for Entrepreneurship at the College of
Charleston. He earned his PhD in property from the University of
Aberdeen, Scotland. His research articles have been published in
The Appraisal Journal, Journal of Real Estate Research and Journal of David Wyman, PhD
Housing Research.
To read the award-winning article, go to http://bit.ly/TAJarticles.
www.appraisalinstitute.org Spring 2018 • The Appraisal Journal ixCases in Brief
by Scott B. Mueller, JD
Recent Court Decisions on Real Estate
and Valuation
Before and after appraisal not required operating, altering, replacing, and repairing the
in condemnation diversion channel and recreational facilities.”
After being unable to reach an agreement on
To reduce flooding and to regulate the flow of the the conveyance or the terms of the conveyance
Blanchard River, the Maumee Watershed Con- of the property, the District requested to appro-
servancy District (District) sought a diversion priate a fee simple interest in a portion of the
channel situated on a property owned by the property owners’ land. The District asserted that
Bueschers (19.004 acres) and T & A Properties it had provided the owners a good faith offer
(16.115 acres). based on appraisals more than thirty days prior to
The District’s appraised value of Bueschers’ the filing of its appropriation actions.
real estate equaled $7,492.10 per acre (agricul- The appeals court noted that under state law,
tural) and $14,904.00 per acre (non-agricul- an agency may appropriate real property only
tural). T & A Properties’ farmland was valued at after the agency obtains an appraisal of the prop-
$7,504.56 per acre. erty and provides a copy of the appraisal to the
The District sent a notice of its appropriation property owner. When the appraisal indicates
intent and real estate appraisal to the Bueschers that the property is worth less than ten thousand
and to T & A Properties, and pursuant to dollars, the agency need only provide the prop-
statute the District made a good faith offer, erty owner with a summary of the appraisal.
based on its appraisals, to purchase the The property owners claimed the District had
Bueschers’ land for $146,234.00, and to pur- failed to provide just compensation for their real
chase T & A Properties’ land for $120,943.08. estate as the District had based its good faith
Neither property owner accepted the offer or offers on invalid appraisals that did not consider
made a counteroffer so the District filed its the before and after value of their respective
petitions and complaints for appropriation. properties. The owners did not argue that the
After owners’ motions for judgment on the statute was ambiguous or convoluted, rather,
pleadings failed at the trial court level this con- they simply asserted that the District’s failure to
solidated appeal was filed. conduct a before and after appraisal of their real
The property owners argued that the District estate is contrary to Ohio law.
did not comply with statutory and constitutional The property owners supported their argument
requirements for just compensation. that before and after appraisals are required in
The District asserted that it had the power appropriation proceedings by citing Hilliard v.
and authority to appropriate real property for First Industrial, L.P. In that case, the court held
the public purposes of “(a) construction of a that damage to the portion of property remaining
new diversion channel for the Blanchard River; after the other portion is taken is measured by
(b) regulation of the flow of the Blanchard the difference between the pre- and post-appro-
River; (c) maintenance of open space for the priation fair market value of the residue.
conservation of natural floodplain functions; However, in the present case the court of
(d) creation of recreational facilities, and appeals interpreted Hilliard to say that the mat-
related improvements; and (e) maintaining, ter of compensation was determined by a jury,
www.appraisalinstitute.org Spring 2018 • The Appraisal Journal 99Cases in Brief
not by the trial court. It also referenced the deci- a complaint seeking to reduce the fiscal officer’s
sion in Wray v. Stvartak, holding that “it is well valuation of the property from $1,429,100 to
settled that a qualified witness must give his $850,000. Although Jakobovitch also presented
opinion as to the value of the entire property a financing appraisal of $1,050,000 as of July
before the taking and as to the value of the 2010, the appraiser did not appear to testify at
remainder of the property after the taking.” As any of the proceedings.
such, the court found that the owners’ cited At the BOR proceedings, when asked to justify
authority did not establish the requirement of a a valuation of $850,000, Jakobovitch’s counsel
before and after appraisal prior to the filing of a responded that the request was “just a prayer,” but
petition for appropriation. Therefore, the court cited a limited market for the subject property due
of appeals ruled that the trial court had properly to both the excessive size and the religious fea-
overruled the property owners’ motions for judg- tures of the house. No analysis was offered to
ment on the pleadings. quantify how these attributes affect the property’s
value. The BOE argued that the financing
Maumee Watershed Conservancy Dist. v. appraisal that Jakobovitch submitted should be
Buescher, and Putnam Soil and Water Conservation discounted because the appraisal did not value
the property as of the 2013 tax-lien date, the
Maumee Watershed Conservancy Dist. v. appraiser did not appear to testify, and the compa-
T & A Properties, and rables identified in the appraisal were not located
Putnam Soil and Water Conservation near the subject property. The BOR retained the
fiscal officer’s valuation. Jakobovitch appealed to
Court of Appeals of Ohio the BTA. After the BTA affirmed the fiscal offi-
Third District cer’s valuation Jakobovitch appealed to the court.
December 18, 2017 Jakobovitch argued most prominently that the
2017 WL 6450826 BTA misapplied the standards governing her bur-
den of proof. The court noted that case law pro-
vided that “the party challenging the board of
Taxpayer challenge denied revision’s decision at the BTA has the burden of
due to untimely, unsupported proof to establish its proposed value as the value of
financing appraisal the property.” And “The burden is on the taxpayer
to prove his right to a deduction. He is not entitled
Galina Jakobovitch sought to reduce the valua- to the deduction claimed merely because no evi-
tion assigned to her property by Cuyahoga dence is adduced contra his claim.” To meet that
County. The Cuyahoga County Board of Revi- burden, the appellant must furnish “competent
sion (BOR) and the Board of Tax Appeals (BTA) and probative evidence” of the proposed value.
both retained the fiscal officer’s valuation. Jako- Jakobovitch argued that the BTA erred in dis-
bovitch appealed the BTA’s decision, on both regarding her July 2010 financing appraisal. But
value-related arguments and procedural argu- the court, which had confronted a similar argu-
ments. The Beachwood City School District ment under analogous circumstances before,
Board of Education (BOE) sought retention of reached the opposite results.
the fiscal officer’s valuation. First, the appraisal submitted by Jakobovitch
Jakobovitch’s property is a single-family dwell- opined a value as of July 2010 and did not coin-
ing situated on a roughly 0.45-acre parcel in cide with the 2013 tax-lien date. The court noted
Beachwood. For tax year 2013, Jakobovitch filed that the vintage of an appraisal matters because
100 The Appraisal Journal • Spring 2018 www.appraisalinstitute.orgCases in Brief
“the essence of an assessment is that it fixes the due to a lack of sales. Notestine’s appraiser con-
value based upon facts as they exist at a certain ducted the appraisal using an income capitaliza-
point in time.” Second, the court noted that Jako- tion approach based on the actual restricted
bovitch “did not introduce testimony alongside rents, and actual and market comparable
[her] appraisal to explain its application to the expenses. Notestine’s appraiser derived a capital-
tax-lien date.” Lastly, the appraisal was performed ization rate by using the direct comparison, band
for financing purposes. The court found that in of investment, and debt coverage formula tech-
the absence of supporting testimony, applying a niques, and applied that rate to a net operating
financing appraisal in the tax-valuation setting is income figure. Thus, under the appraiser’s income
problematic because it may not necessarily repre- approach, Notestine’s appraiser concluded that
sent a “complete and thorough evaluation of the the value of the property was $75,000 as of Janu-
property.” The court affirmed the BTA’s decision. ary 1, 2013, reflecting a value of $6,818 for each
of the eleven units.
Jakobovitch v. Cuyahoga County Board of Revision The tax board rejected the argument that the
Supreme Court of Ohio actual restricted rents should not be used as
December 6, 2017 nothing in the record indicated that “the con-
2017 WL 6048255 tract rents exceed those generally available in
the market or that the property benefits from
additional tax incentives.” The tax board
Federal rent subsidy impacts adopted the appraiser’s valuation of $75,000.
rental property valuation The County appealed.
The court noted that the preference for market
Notestine owned an eleven-unit residential rental rent over contract rent was presumptive, not
property developed as low-income housing under conclusive. With Section 8 rent subsidies, using
Section 202 of the Housing Act of 1959. Section market rent removes the affirmative value of
202 provides assistance in the form of a capital government subsidies because the subsidies tend
advance from the US Department of Housing and to inflate rents to above-market rates. However,
Urban Development (HUD) to build rental hous- the property at issue here, which is in the Section
ing for very low-income elderly individuals and 202 program, presents a different situation. The
also provides for a “project rental assistance” con- rents appear to be minimal, and any federal sub-
tract (PRAC). The rent to be paid by eligible ten- sidization is strictly controlled by rigorous
ants is strictly limited and based upon income. As HUD-imposed restrictions on the accumulation
such, Notestine’s tenants pay up to thirty percent of surpluses. There is no evidence that adjust-
of their adjusted gross income on rent, with HUD ments from contract rent to market rent would
subsidizing any difference. eliminate the affirmative value of government
The auditor valued the property at $811,120 subsidies. Thus, the Supreme Court of Ohio,
for tax year 2013, but Notestine sought a reduc- affirmed the tax board’s adoption of the $75,000
tion to $165,000 based on an income approach value reported in Notestine’s appraisal.
that used actual rent and expenses. At the tax
hearing, Notestine presented an appraisal report Notestine Manor, Inc. v.
and testimony. Logan County Board of Revision
Because of the restrictions on the property, Supreme Court of Ohio
Notestine’s appraiser rejected the cost approach. January 02, 2018
She also rejected the sales comparison method, 2018 WL 321568
www.appraisalinstitute.org Spring 2018 • The Appraisal Journal 101Cases in Brief
Bankruptcy trustee needs recent The district court found a critical need existed
objective appraisal to demonstrate for discovery of the appraisals and other undis-
fairness/adequacy of settlement closed documents used by the parties to the Black
Bear compromise. The court concluded that the
A bankruptcy creditor, BR North 223, LLC (BR Bankruptcy Court’s decision to not afford BR
North) contested a Bankruptcy Court order North its requested documents prejudiced that
approving a compromise entered into under largest creditor.
Chapter 7 bankruptcy between the bankruptcy The documents that the Bankruptcy Court
trustee (Trustee) and the children of the debtor. considered in evaluating the proposed $125,000
During prior litigation, BR North obtained a compromise included a 2007 appraisal of Mount
default judgment of approximately $81 million Bohemia, a ski resort owned by Black Bear, which
against the bankruptcy debtor, Bernard Glieber- opined that Mount Bohemia’s buildings and
man (Glieberman). equipment were worth $385,000 and a 2009
After obtaining the $81 million judgment, BR appraisal of Mount Bohemia by the same com-
North filed a fraudulent transfer action concern- pany, which opined that the resort’s buildings
ing Glieberman’s 2007 transfer of stock in Black and equipment were worth $410,000. Both
Bear, a ski-resort holding company, to his son. appraisals indicated that the property failed to
Glieberman then filed a post-judgment volun- produce a positive net operating income.
tary petition for bankruptcy. The Trustee justified the compromise by stating,
Glieberman’s estate reached an agreement
with the Trustee to settle the claims asserted Assuming arguendo that the appraised value of the
against them involving the Black Bear ski com- assets is between $380,000 to $410,000 as described in
plex for $125,000. BR North objected to the the 2007 Appraisal and the 2009 Appraisal, respec-
Black Bear compromise motion. tively, and the total liabilities of Black Bear, Inc. at the
BR North argued that the compromise was same time is approximately $1,534,769 based upon the
unfair and inequitable given the Trustee’s refusal 2009 Memorandum after recapitalization of the Debt-
to provide documents used to negotiate the com- or’s loans, there would be no equity in Black Bear, Inc.
promise figure, in tandem with the Bankruptcy at the time of the Black Bear Transfer in late 2007.
Court’s subsequent refusal to authorize discovery
of those documents, which included appraisals of The Trustee pointed out in the Black Bear com-
the Black Bear resort. promise that his aim was “only to illustrate to the
The Bankruptcy Court had approved the Black [Bankruptcy] Court that the value of Black Bear
Bear compromise motion, citing “the complexity is uncertain and would be the subject of exten-
and expense of the fraudulent transfer litigation sive litigation.”
and the difficulties inherent in collecting on any The District Court noted that the Bankruptcy
judgment.” Court was presented with a wide spectrum of
On appeal, the district court noted that before plausible values for Black Bear’s Mount Bohemia
approving a compromise, “the [bankruptcy] court in 2007, ranging from $385,000 to upwards of $2
must ‘apprise itself of all facts necessary to evalu- million. The proposed compromise of $125,000
ate the settlement and make an informed and amounted to less than one third of the lowest end
independent judgment as to whether the com- of that spectrum. Therefore, an objective, recent
promise is fair and equitable.’ [D]iscovery in a appraisal was critical to the judicial determina-
contested matter is permitted only upon a court tion of whether the Black Bear proposed compro-
order for cause shown.” mise was fair and equitable.
102 The Appraisal Journal • Spring 2018 www.appraisalinstitute.orgCases in Brief
The District Court reversed the bankruptcy amount of $4,972,000, based on the Woolford
Court’s order granting the Black Bear compro- Appraiser’s assessment.
mise motion and remanded the matter for fur- On December 3, 2013, the Virginia Depart-
ther proceedings. ment of Taxation (Department) cited “material
deficiencies and/or issues that cause [the submit-
In Re Glieberman and BR North 223 v. Taunt et al. ted appraisal] to be unreliable.” The Woolfords
United States District Court submitted a second appraisal that lowered the
E.D. Michigan, Southern Division appraised value of the conservation easement
Bankruptcy Case No. 15-55996 from $12,430,000 to $10,180,000, but the parties
Civil Case No. 17-12796 were unable to reach a resolution. In December
October 11, 2017 2014 the Department rejected the Woolfords’
2017 WL 4681805 appraisals and disallowed all tax credits. The
Department cited “the speculative analysis, con-
flicting data, lack of qualifications, and failure to
Appraiser qualified for appraisal meet the requirements” of the tax code.
of mining property because of experience Before the trial court, the Woolford Appraiser
testified that he either appraised or participated
The Woolford family owned a 450-acre farm in the review of four properties involving sand
and hired an appraiser in anticipation of apply- and gravel mines. He had appraised a tract
ing for a land preservation tax credit. The Wool- involving a proposed plant on 40 acres with
ford family’s appraiser (Woolford Appraiser) had 180 acres of residential land tied to it which
been licensed by the Virginia Real Estate afforded him a first opportunity “to get up to
Appraiser Board as a general real estate appraiser speed on that market.” Another appraisal
since 1994. On November 25, 2011, the Wool- involved condemning 40 acres adjacent to an
ford Appraiser provided a detailed appraisal at operating pit where the sand and gravel mine did
$13.5 million without a land preservation ease- not represent the highest and best use for the
ment, and at $1,070,000 with a conservation property. In 2007, he reviewed an appraisal for a
easement—a $12,430,000 difference. According property involving 103 acres and approximately
to the Woolford Appraiser, the value of the land 3 million tons of material. Finally, in 2011, he
overwhelmingly derived from unmined sand and appraised a property where a contractor was min-
gravel deposits. ing materials for a construction business.
The Woolford Appraiser valued “the sand and The Woolford Appraiser explained that “valu-
gravel operations as a going concern,” allocating ation is a process by which you go from identify-
$4,550,000 “to the value of the minerals in the ing the problem to inspecting the property to
ground,” and $8,425,000 for a mine as a “pro- studying the market and ultimately preparing
spective going concern.” He placed a value of market analysis” for the property’s highest and
$525,000 on the remaining 174.7 acres of land. best use. He stated that in the present case he
The Woolford Appraiser expressly assumed that had “reviewed his previous sand and gravel
the necessary special use permit could be obtained appraisal work, as well as published appraisal
in a reasonable time frame. industry resources. He educated himself concern-
The Woolfords donated a conservation ease- ing the sand and gravel market. He discussed the
ment on November 11, 2011, which prohibited matter with ‘friends in the industry,’ spoke with
mining the sand and gravel on the property. The other appraisers, researched production statistics,
Woolfords then received a tax credit in the and did ‘quite a bit of local research.’ He studied
www.appraisalinstitute.org Spring 2018 • The Appraisal Journal 103Cases in Brief
the local market for sand and gravel, examined Dispute over fair market value
the infrastructure near the Woolfords’ property, does not void option where
talked to other local market participants, looked price mechanism is specified in lease
for sales of comparable mines, and spoke with
local sources as well as officials at the Depart- This dispute arises out of an option-to-purchase
ment of Mines, Minerals and Energy.” He also provision in a lease. The lease provided that in
noted that he had relied on the report by a the event the option was exercised, the purchase
licensed geologist that the site contained 7.75 price would equal the fair market value reflected
million tons of marketable sand and gravel. The in appraisals of the property. Specifically, the
trial court granted summary judgment for the agreement required each party to commission an
Department holding that the Woolford Appraiser appraisal, and the purchase price would be the
lacked the necessary education and experience. average of the two appraisals so long as they were
The Woolfords appealed. within five percent, but if the difference was
The supreme court noted that the property was greater than five percent, the two appraisers
an active farm with significant sand and gravel would collectively choose a third appraiser to
deposits, and that the appropriate statutes pro- conduct an independent appraisal. That
vided that a qualified appraiser needed “verifi- “appraised value,” according to the agreement,
able education and experience in valuing.” It is became the final purchase price.
sufficient if the appraiser can, from education The Lessee attempted to exercise its option,
and/or experience, make an informed and accu- but the two appraisals varied widely because they
rate appraisal of the property. appraised different interests. Lessor’s appraiser
Despite a lack of formal mining value educa- considered the terms of lease and estimated the
tion, the court noted that the Woolford Appraiser value of the leased fee interest in the property at
appraised an adequate sample population of sand $6,880,000. Lessee’s appraiser considered the
and gravel mines or comparable mineral deposits. value of the property without the current lease—a
The fact that the Woolford Appraiser spoke with fee simple interest at $4,075,000. No third
colleagues and other relevant professionals also appraisal occurred, but Lessor filed suit seeking to
weighed in favor of his credibility. The supreme compel Lessee to purchase the property at the
court also found persuasive the Woolford price determined by Lessor’s appraiser. Lessee
Appraiser’s considerable effort in learning about responded with a counterclaim to resolve
sand and gravel mines in general and about the whether the appraisals should be based on the
local and regional market for those products in leased fee interest or fee simple interest. The trial
particular. Therefore, the supreme court reversed court found that there was no meeting of the
the trial court decision that had found the Wool- minds and that the option was therefore void.
ford Appraiser not a “qualified appraiser” of the The Lessee appealed.
property and remanded the case for further pro- The court had previously stated in Walgreen
ceedings not inconsistent with this finding. Co. v. City of Madison that a leased fee interest
values the property based on the actual lease
Woolford v. Virginia Department of Taxation encumbering the property, while a fee simple
Supreme Court of Virginia interest assumes market rent rather than actual
294 Va. 377 rent. Thus, the leased-fee approach takes into
November 22, 2017 account the future expected revenues of an
existing lease rather than what an unencum-
bered property would lease for based on the cur-
104 The Appraisal Journal • Spring 2018 www.appraisalinstitute.orgCases in Brief
rent market. This means that where an existing Potential rezoning and redevelopment
lease reflects the market value of rent, the too speculative to be basis for
appraised value of a leased fee interest and fee highest and best use in appraisal
simple interest should be the same. Where con-
tract rents are above market levels, the leased This case involves a dispute as to whether the
fee interest will likely be higher than the fee personal representative of an estate should be
simple interest, and vice versa. removed for failing to obtain an adequate
In the current case, the court of appeals noted, appraisal of the deceased’s estate.
“Although the parties to a contract need not The estate’s current farm tenant held the first
agree to a specific price, they must agree to some opportunity to purchase the subject property
ascertainable and practicable method to arrive at “under commercially reasonable terms and condi-
that price to have a binding contract of sale. Said tions as … [the] personal representative may
another way, although the contract does not agree.” The personal representative hired a certi-
specify a price, it is enforceable if it specifies ‘the fied appraiser, who valued the subject property at
manner by which the price is to be ascertained or $785,859 based on its agricultural use. The per-
can be determined’.” sonal representative then entered into a contract
Under the option here, the parties agreed to with the current farm tenant for $900,000.
each select an appraiser to prepare an appraisal The heirs contested this price and hired a
of the property’s fair market value. If the two licensed appraiser to appraise the subject prop-
appraisals were within five percent of each other, erty. The heirs’ appraiser testified that the total
then the “appraised value” would be the average value of the property was $1,457,000 and deter-
of the two. In the event of a more significant mined the “highest and best use [was] residential
disagreement—like the multimillion dollar dif- development with interim agricultural use.” He
ference between the appraisals here—the parties reasoned, “[Y]ou can ... divide [the] property by
provided a means to resolve such disputes: a 20 acres, ... clump those together in what is called
third appraisal conducted by a third appraiser a Community Unit Plan, ... [build] houses in one
chosen by the first two appraisers. Thus, the par- area, and then the rest of it is then restricted use
ties agreed to a contract that will provide a until ... you would have a zoning change.” He
definitive, definite price for the property, and stated that he had seen this approach done “mul-
the option is enforceable. The appeals court tiple times.”
granted the Lessee’s request to remand the mat- The appraiser hired by the estate’s personal
ter to the trial court for a determination as to representative to value the property was a
which appraisal method would be proper under licensed general certified appraiser, real estate
the option. broker, and crop insurance agent. In reaching his
opinion of value, the personal representative’s
Headstart Building, LLC, v. appraiser testified that he had inspected the
National Centers for Learning Excellence, Inc. property and “used the three approaches to value:
Court of Appeals of Wisconsin the sales comparison approach, the income
905 N.W.2d 147 approach, and the cost approach.” He deter-
November 8, 2017 mined that “the highest and best use is agricul-
ture, dry land row crop reduction, and cattle
grazing.” The personal representative’s appraiser
further stated that “another highest and best use
of the subject property was rural residential acre-
www.appraisalinstitute.org Spring 2018 • The Appraisal Journal 105Cases in Brief
age use” for the part of the property with a build- to condemn the property. Following a hearing
ing. He did not consider himself competent the court entered an order of condemnation.
under the Uniform Standards of Professional Summerour appealed and the court of appeals
Appraisal Practice to appraise property for devel- set aside the condemnation because when the
opment, but stated, City attempted to negotiate a voluntary sale, it
failed to provide an appraisal as mandated by
[A]s I looked at it from a feasible standpoint, I felt what statute, which amounted to bad faith.
… a potential buyer would pay for land ... it wasn’t Prior to condemnation on June 1, 2010, the
financially feasible because by the time you do the City sent a letter to Summerour, informing him
development cost in it, and then I researched the mar- that the City had an interest in his property, that
ket to see what three- to five-acre tracts of land were it had hired an appraiser to determine the value
selling for, there wasn’t enough profit margin in my of the land, and that an offer to purchase the
opinion for a developer to take that risk. property was forthcoming. Three weeks later the
City sent a written offer to purchase the property
The state supreme court found the personal at $85,000, the value reported by a certified
representative’s appraiser had licensing, experi- appraiser. Summerour did not respond to this
ence, and testimony sufficient to appraise prop- offer or a subsequent October 6, 2010 offer.
erty deemed agricultural. The physical and The City did not correspond further with Sum-
temporal separation between the property and merour for the next two-and-a-half years. But
any potential or planned and zoned residential then, on May 23, 2013, the City resumed its
development rendered the heirs’ appraisal too efforts to acquire his land. That day, the City sent
speculative and unrealistic given the inability to a letter to Summerour in which it expressed its
ascertain variables such as cost, market, and mar- continuing interest in the land and stating he
gins. The state supreme court ruled that the ought to contact the City. Summerour again did
county court was clearly not erroneous in its not respond. The City hired a real estate appraiser
determination that a $900,000 sale price for the to reappraise the land, and a business appraiser to
property was commercially reasonable. assess the value of the grocery store that sits on
the property.
In Re Estate of Etmund The total value of the property reported by the
Supreme Court of Nebraska City’s appraiser was $141,700.00 ($95,000 for the
297 Neb. 455 real property and $46,700 for the business). On
August 11, 2017 August 13, 2013 Summerour asked for a copy or
summary of the appraisal or some documentation
to show how the appraisers reached their value.
Failure to provide timely condemnation On December 4, 2013 Summerour submitted a
appraisal fatal to condemnation counteroffer to sell the property for $375,000.
The City rejected the counteroffer and negotia-
This case concerns a small grocery store and the tions ensued. On May 16, 2014 the City pro-
parcel of land on which that store sits. Ray Sum- duced a copy of the appraisal report.
merour owned the land for nearly three decades. After negotiations failed, the City filed a peti-
The City of Marietta (City) wanted to acquire tion to condemn the parcel of land. The trial
the land to build a park. Unable to negotiate a court appointed a special master to conduct an
voluntary sale of the parcel, it resolved to take evidentiary hearing. The special master found
the land by eminent domain, and filed a petition the fair market value of Summerour’s land to be
106 The Appraisal Journal • Spring 2018 www.appraisalinstitute.orgCases in Brief
$225,000. The trial court agreed and ordered the the fair market value of the home was $282,000,
condemnation of the land. and accepted an appraised value of $252,000
Summerour appealed, and the court of appeals prepared by an appraiser for Wife. Husband
set aside the condemnation order because the contended that “oral in-court reaffirmation of
condemnation code required the City to provide his $282,000 appraisal at the hearing was the
Summerour with a written summary of the basis best evidence and the most-timely evidence of
for its valuation of his land before, or at least [the value of] the marital residence.” He also
around the time that, negotiations commenced. argued that his appraiser relied on more trust-
The City had not provided Summerour with worthy comparables than Wife’s appraiser, par-
such summary in a timely manner, only pro ticularly with regard to location. Husband stated
viding the summary “long after the initiation the Master did not “read the wife’s appraiser
of negotiations.” appraisal with a critical eye” and “wholly over-
The court stated that without appraisal infor- looked that the Wife’s appraiser appraisal bears
mation, a landowner cannot know whether an all of the markings of a result-driven appraisal of
offer is fair and whether it reflects the true mar- the marital residence.”
ket value of the property. As to timing, the stated The court found that the Master gave a detailed
statutory goal of promoting fair and expeditious explanation as to why she gave “very little
negotiations is best served if the appraisal sum- weight” on husband’s appraiser’s hearing testi-
mary is provided as early in the negotiation pro- mony, particularly because he attempted to dis-
cess as possible. credit the appraised value rendered by Wife’s
appraiser. First, the Master stated that although
City of Marietta v. Summerour Husband’s appraiser testified he only “read” the
807 S.E.2d 324 report of Wife’s appraiser and did not “review” it,
Supreme Court of Georgia “it was clear that the purpose of [his] testimony
October 30, 2017 was to challenge the fair market value assigned
by Wife’s appraiser. Second, the Master found
Husband’s appraiser’s testimony did not “square
Master did not abuse discretion in giving with the contents of his fair market value
more weight to written appraisal report appraisal,” particularly with regard to the prop-
with more recent comparables erty located across the street from the marital res-
idence. The Master focused on the testimony of
This case involves the appeal by John E. Wallace husband’s appraiser that was inconsistent with
(Husband) of a marital award in the dissolution the information listed in both appraisers’ apprais-
of his marriage to Christina Masciere Wallace als. Third, the Master explained the comparable
(Wife). On appeal, Husband argued that the trial properties in the Wife’s appraisal were more
court erred when it sustained Wife’s objection recent sales than those in the Husband’s appraisal.
to hearsay testimony by Husband’s real estate The Husband attempted to undermine the
appraiser. He claimed that the court had mistak- credibility of Wife’s appraiser’s valuation by
enly discredited the live testimony of his expert emphasizing that his appraiser’s comparables were
appraiser as to the valuation of the marital home, located much closer to the marital residence—
instead, crediting a written appraisal. less than one mile away, while two of the three
Husband claimed that the court-appointed comparables used by Wife’s appraiser were 2.5 and
Master abused her discretion when she disre- 7 miles from the marital residence. The Master
garded the testimony of his appraiser, who stated took the locales into account, though, and even
www.appraisalinstitute.org Spring 2018 • The Appraisal Journal 107Cases in Brief
appeared to discount one of Wife’s comparable The court found no error in the Master’s use of
properties from another town. Ultimately, how- the “the most recent in time appraisal [as] the
ever, the Master found the more-recent sales in most appropriate in determining the value of the
Wife’s appraisal, particularly the property across marital residence.” The court concluded that
the street from the marital residence, were more Husband failed to provide a basis to disagree
reflective of the value of the marital home, pro- with the Master’s findings and affirmed the
viding a more accurate picture of the value of decree in divorce.
homes similar to marital property at or near the
date of distribution. For this reason, the Master Wallace v. Wallace
accepted the value submitted by Wife’s appraiser Superior Court of Pennsylvania
as the fair market value of the marital residence October 12, 2017
for purposes of equitable distribution. 2017 WL 4550872
About the Author
Scott B. Mueller, JD, is a partner in the St. Louis office of the firm Stinson Leonard Street LLP. His legal practice
concentrates in real estate and banking litigation. He is a frequent speaker and presenter at continuing legal education
seminars and has spoken on issues such as recession-related title defects, mechanic’s liens, title insurance fundamen-
tals, landlord and tenant law, mediation, and presenting evidence in real estate cases. He is licensed to practice in the
state and federal courts in Kansas, Missouri, and Illinois. Mueller’s article, “Is Equitable Subrogation Dead for Lenders
and Insurers in Missouri,” was published in the Journal of the Missouri Bar. He is a member of the City of Webster
Groves’s City Plan Commission. Contact: scott.mueller@stinson.com
108 The Appraisal Journal • Spring 2018 www.appraisalinstitute.orgYou can also read
