SUPREME COURT OF THE STATE OF NEW YORK
Appellate Division, Fourth Judicial Department
1040
CA 12-00434
PRESENT: CENTRA, J.P., FAHEY, PERADOTTO, CARNI, AND SCONIERS, JJ.
IN THE MATTER OF THE BOARD OF MANAGERS OF
FRENCH OAKS CONDOMINIUM, PETITIONER-RESPONDENT,
V MEMORANDUM AND ORDER
TOWN OF AMHERST, HARRY WILLIAMS, TOWN ASSESSOR
OF TOWN OF AMHERST, BOARD OF ASSESSMENT REVIEW
OF TOWN OF AMHERST, RESPONDENTS-APPELLANTS,
AND WILLIAMSVILLE CENTRAL SCHOOL DISTRICT,
INTERVENOR-RESPONDENT.
PHILLIPS LYTLE LLP, BUFFALO (MARC W. BROWN OF COUNSEL), FOR
RESPONDENTS-APPELLANTS.
AMIGONE, SANCHEZ & MATTREY, LLP, BUFFALO (B.P. OLIVERIO OF COUNSEL),
FOR PETITIONER-RESPONDENT.
Appeal from an order of the Supreme Court, Erie County (John A.
Michalek, J.), entered June 7, 2011 in proceedings pursuant to RPTL
article 7. The order, inter alia, determined the value of the French
Oaks Condominium after a hearing before a referee.
It is hereby ORDERED that the order so appealed from is affirmed
without costs.
Memorandum: Petitioner commenced this RPTL article 7 proceeding
(first proceeding) seeking review of the real property tax assessments
for its condominium complex (complex) for the 2009-2010 tax year.
Respondents appeal from an order that determined the value of the
complex for tax assessment purposes after a hearing before a referee.
We affirm.
We note as background that, after commencing the first
proceeding, petitioner commenced a second proceeding seeking review of
the complex’s real property tax assessments for the 2010-2011 tax
year. The parties stipulated that a referee would hear and determine
the first proceeding and that the result of the first proceeding would
resolve the second proceeding.
The trial relating to the first proceeding was essentially a
contest between the respective expert appraisers for petitioner and
respondents. At trial, respondents moved to dismiss the first
petition on the ground that the appraisal report of petitioner’s
expert was so fundamentally flawed that petitioner failed to meet its
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burden of showing by substantial evidence the existence of a valid
dispute with respect to the valuation of the complex. The Referee
denied the motion and subsequently established a market value for the
complex in accordance with the rules set forth in Matter of East Med.
Ctr., L.P. v Assessor of Town of Manlius (16 AD3d 1119, 1120), and by
applying an income approach to valuation (see Matter of South Bay Dev.
Corp. v Board of Assessors of County of Nassau, 108 AD2d 493, 498).
Under the income approach, the market rental value for the 39 units in
the complex was estimated and the complex’s overhead expenses were
subtracted from that figure in order to obtain the net operating
income. The net operating income was then divided by a final
capitalization rate in order to obtain the value of the complex. The
final capitalization rate was determined by identifying a comparable
complex or complexes and dividing the yearly net operating income of
each comparable complex by its sale price, which yielded a
capitalization rate. The capitalization rate, in turn, was then added
to a tax factor, which was calculated by multiplying the tax rate by
the equalization rate, and dividing the ensuing product by 1,000. The
addition of those figures, i.e., the capitalization rate and the tax
factor, yielded a final capitalization rate.
After applying the calculation under the income approach, the
Referee valued the complex at $4,353,030 and thereafter apportioned
that amount between the 39 units in the complex. In calculating the
assessed value of the complex, the Referee adopted the calculations of
respondents’ expert with respect to both the net operating income and
the tax factor and adopted the calculation of petitioner’s expert only
with respect to the capitalization rate. Supreme Court subsequently
ordered, inter alia, that respondent Town of Amherst and intervenor,
Williamsville Central School District, were to amend the 2009 and 2010
tax rolls with respect to the complex to reflect the determination of
the Referee, and that the provisions and restrictions of RPTL 727
shall apply to the Referee’s determinations.
With respect to the merits, we reject respondents’ contention
that the appraisal of petitioner’s expert does not demonstrate the
existence of a credible valuation dispute regarding the valuation of
the complex under the substantial evidence standard. “Our analysis
begins with the recognition that a property valuation by the tax
assessor is presumptively valid . . . and thus ‘obviates any
necessity, on the part of the assessors, of going forward with proof
of the correctness of their valuation’ . . . However, when a
petitioner challenging the assessment comes forward with ‘substantial
evidence’ to the contrary, the presumption disappears” (Matter of FMC
Corp. [Peroxygen Chems. Div.] v Unmack, 92 NY2d 179, 187; see Matter
of Thomas v Davis, 96 AD3d 1412, 1413). “The substantial evidence
standard is a minimal standard. It requires less than clear and
convincing evidence . . . , and less than proof by a preponderance of
the evidence, overwhelming evidence or evidence beyond a reasonable
doubt” (FMC Corp. [Peroxygen Chems. Div.], 92 NY2d at 188 [internal
quotation marks omitted]).
“ ‘In the context of tax assessment cases, the “substantial
evidence” standard merely requires that petitioner demonstrate the
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existence of a valid and credible dispute regarding valuation’ ”
(Thomas, 96 AD3d at 1413, quoting FMC Corp. [Peroxygen Chems. Div.],
92 NY2d at 188; see East Med. Ctr., L.P., 16 AD3d at 1120). In such a
proceeding, “substantial evidence will most often consist of a
detailed, competent appraisal based on standard, accepted appraisal
techniques and prepared by a qualified appraiser” (Matter of Niagara
Mohawk Power Corp. v Assessor of Town of Geddes, 92 NY2d 192, 196).
The requirements for appraisal reports are set forth in 22 NYCRR
202.59 (g) (2).
Here, respondents challenge the sufficiency of petitioner’s
expert evidence. First, respondents contend that petitioner’s expert
was not qualified to testify. We reject that contention. The fact
that petitioner’s expert is not a licensed appraiser is of no moment
(see Matter of OCG L.P. v Board of Assessment Review of the Town of
Owego, 79 AD3d 1224, 1226). Likewise, there is no merit to
respondents’ contention that petitioner’s expert should have been
precluded from testifying on petitioner’s behalf. To the extent that
the acceptance of a fee by petitioner’s expert undermines his
appraisal, that deficiency goes to the weight to be afforded that
appraisal, not its admissibility (see generally National Fuel Gas
Supply Corp. v Goodremote, 13 AD3d 1134, 1135; Champlain Natl. Bank v
Brignola, 249 AD2d 656, 657).
Second, respondents challenge petitioner’s appraisal on the
ground that it lacks information with respect to the interior areas of
each of the complex’s units. Specifically, respondents contend that
the lack of photographs of the interior of the complex’s individual
units in petitioner’s appraisal renders that appraisal insufficient.
We reject that contention. Pursuant to 22 NYCRR 202.59 (g) (2),
“appraisal reports . . . may contain photographs of the property under
review” (emphasis added), but there is no requirement that an
appraisal must contain photographs. Respondents’ further contention
that petitioner’s appraisal lacks evidentiary value because it does
not describe the interior of the units is also without merit.
Petitioner’s expert opined that the differences in the respective
interiors of the units did not affect their rental value, and that
opinion was a factor for the court to consider in weighing the
evidence (see generally Welch Foods v Town of Westfield, 222 AD2d
1053, 1054).
Third, respondents’ contention that the Referee should have
disregarded petitioner’s appraisal because it failed to establish the
fair market value of each of the complex’s units lacks merit. In view
of the similarity of the units and the fact that all of the units were
constructed at approximately the same time, there is no need here for
petitioner’s expert to allocate a specific value to the individual
units in the complex. Thus, that failure affects the weight of
petitioner’s expert evidence, not its sufficiency (see generally
National Fuel Gas Supply Corp., 13 AD3d at 1135; Champlain Natl. Bank,
249 AD2d at 657).
Fourth, respondents contend that petitioner’s appraisal is
insufficient because the market rents analysis for comparable
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properties provided by petitioner’s expert is not supported by “a
clear and concise statement of every fact that a party will seek to
prove in relation to those comparable properties” (22 NYCRR 202.59 [g]
[2]). Respondents also contend that petitioner’s appraisal is
insufficient because it did not provide an adequate explanation of how
petitioner’s expert assigned each unit in the complex a specific
rental value within a range of rental values per square foot.
Pursuant to 22 NYCRR 202.59 (g) (2), “[t]he appraisal reports shall
contain a statement of . . . the conclusions as to value reached by
the expert, together with the facts, figures and calculations by which
the conclusions were reached.” “A major reason for the rule requiring
the disclosure of facts and source materials at the appraisal stage is
to allow opposing counsel the opportunity to effectively prepare for
cross-examination” (Matter of Gullo v Semon, 265 AD2d 656, 657).
Here, petitioner’s expert applied location and rent concession
adjustments to comparable properties in his appraisal without
specifying the basis for those adjustments, and also assigned a rental
value for each of the units in the complex within a range of expected
rental prices per square foot without explaining the reasons for the
discrepancies in the rental values of those units. With respect to
the adjustments, “petitioner was not required to provide a detailed
narrative in its appraisal explaining each adjustment made in the
report” (Matter of Bialystock & Bloom v Gleason, 290 AD2d 607, 609).
In any event, the appraisal of petitioner’s expert provided
respondents with “sufficient details necessary to examine the
comparable [rents] used [in reaching the expert’s] conclusions”
regarding the value of the complex (id.). With respect to the rental
values assigned to each of the units in the complex, we conclude that
the appraisal of petitioner’s expert “contained sufficient facts,
figures and calculations regarding [those rental values] so that
respondent[s were] not prejudiced in cross-examining” petitioner’s
expert (Gullo, 265 AD2d at 657).
Fifth, respondents contend that the bases for and the explanation
of the bases for the calculation of the capitalization rate provided
by petitioner’s expert are insufficient. We reject that contention.
Specifically, respondents contend that, in calculating the
capitalization rate, petitioner’s expert improperly considered
properties that were dissimilar to the complex in his analysis of
comparable sales. As respondents correctly note, the complex was
constructed between 2002 and 2005, and all of the comparable complexes
incorporated in the appraisal of petitioner’s expert were built well
before that time. Additionally, the interiors of the properties
considered as comparable sales (hereafter, comparable sales) were not
described in petitioner’s appraisal. That appraisal, however,
provided the year in which many of the comparable sales were built and
the square footage, size and unit prices of the comparable sales.
Thus, there was sufficient information provided in the appraisal to
allow respondents to prepare for cross-examination of petitioner’s
expert on any differences between the comparable sales and the complex
(see id.). Respondents also contend that the information regarding
three of the four comparable sales cited in petitioner’s appraisal is
outdated because there was a subsequent sale of those properties that
petitioner’s expert did not consider. Respondents’ attorney, however,
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had sufficient information to address the issue of the subsequent sale
on cross-examination (see id.). Thus, inasmuch as respondents were
provided sufficient information to prepare for cross-examination
regarding the alleged deficiencies in the comparable sales, any
weaknesses in the choice of comparable sales used by petitioner’s
expert goes to the weight to be given his appraisal, not its
sufficiency (see generally National Fuel Gas Supply Corp., 13 AD3d at
1135; Champlain Natl. Bank, 249 AD2d at 657). Moreover, we note that,
with respect to one of the alleged “outdated” comparable sales,
petitioner’s expert testified that he attempted to obtain income and
expense information regarding the most recent sale, but the owners of
that complex would not disclose that information.
Respondents further contend that the explanation of the
capitalization rate provided by petitioner’s expert is insufficient
because petitioner’s expert used income and expense information
regarding each of the comparable sales that was based on “forecasts,”
rather than on actual income and expenses, and failed to provide the
periods to which that information related. We reject that contention.
Although petitioner’s expert described the financial information for
each of the comparable sales as “forecast financials” in his
appraisal, there was sufficient information in the appraisal to allow
respondents to explore the absence of historical financial information
for the comparable sales on cross-examination (see Gullo, 265 AD2d at
657). Thus, any weakness in the financial information relied upon by
petitioner’s expert goes to the weight to be afforded his appraisal,
not its sufficiency (see generally National Fuel Gas Supply Corp., 13
AD3d at 1135; Champlain Natl. Bank, 249 AD2d at 657).
Having determined that petitioner met its initial burden of
demonstrating a valid and credible dispute regarding valuation, we now
turn to respondents’ contention that the Referee’s determination with
respect to the final capitalization rate is against the weight of the
evidence. In conducting a weight of the evidence review, we “must
weigh the entire record, including evidence of claimed deficiencies in
the assessment, to determine whether [the] petitioner has established
by a preponderance of the evidence that its property has been
overvalued” (Thomas, 96 AD3d at 1413 [internal quotation marks
omitted]). Viewing the evidence in the light most favorable to
petitioner, the prevailing party, we conclude that the Referee’s
determination with respect to the final capitalization rate is
supported by a fair interpretation of the evidence (see generally
Matter of City of Syracuse Indus. Dev. Agency [Alterm, Inc.], 20 AD3d
168, 170).
“The determination of a proper capitalization rate is a factual
question for the trial court, and the opinion evidence of appraisers
is competent evidence of that rate” (Matter of Greater N.Y. Sav. Bank
v Commissioner of Fin., 15 AD3d 661, 661). Put differently, “[t]he
rate of capitalization itself is a matter for proof and argument . . .
and expert testimony based on the personal knowledge and expertise of
the witness is competent evidence and admissible” (Matter of Addis Co.
v Srogi, 79 AD2d 856, 857, lv denied 53 NY2d 603 [emphasis added]).
Thus, the court’s determination with respect to the capitalization
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rate should be affirmed if it is “within the range of expert testimony
and is supported by the evidence” (Matter of Schoeneck v City of
Syracuse, 93 AD2d 988, 988-989).
Here, respondents contend that the Referee should have adopted
the capitalization rate of their expert. We reject that contention.
Significantly, respondents’ expert relied on national statistics
rather than statistics based on the western New York real estate
market. In addition, respondents’ expert failed to discuss the
formula he used to determine the capitalization rate on which he
relied. We therefore conclude that the Referee’s rejection of the
capitalization rate provided by respondents’ expert is supported by a
fair interpretation of the evidence.
Respondents further contend that the court erred in crediting the
capitalization rate of petitioner’s expert on the same grounds that
they challenge the legal sufficiency of petitioner’s appraisal, i.e.,
that it was based on dissimilar comparable sales and flawed financial
data; and ignored more recent comparable sales. Those alleged defects
in petitioner’s appraisal, however, do not render the capitalization
rate proposed by petitioner’s expert incredible as a matter of law.
Indeed, an appraisal is an “estimation of worth” (Black’s Law
Dictionary 117 [9th ed 2009] [emphasis added]), i.e., an approximate
calculation of worth, and we question the degree of precision that
such a study may achieve. Thus, respondents’ complaints with respect
to the comparable sales data on which petitioner’s expert relied are
unavailing; the Referee knew of the imperfections in that data, but
was justified in relying on petitioner’s calculations despite those
flaws. Moreover, we conclude that the Referee was also justified in
crediting petitioner’s capitalization rate even though that rate was
calculated, at least in part, by using financial information
petitioner’s expert had acquired as a result of his prior professional
involvement with the comparable sales. Although petitioner’s expert
had what appears to have been a partial expense sheet for the one
comparable sale and a profit/loss statement from a second comparable
sale, he acknowledged on cross-examination that he did not have
audited financial statements for the comparable sales when he
calculated the net operating income for those properties, which was in
turn used to calculate the capitalization rate. Notably, unlike sales
data, which is a matter of public record, data regarding the net
operating income of a comparable property is almost always the
exclusive property of private enterprise. We therefore question the
frequency and ease with which an appraiser is able to obtain private
and often proprietary income data with respect to a comparable
property. Respondents addressed that issue at oral argument, and
explained only that one would “get [such information] by calling . . .
the individual associations, the individual apartments.” We conclude
that, under these circumstances, disturbing the order based on the
failure of petitioner’s expert to provide “hard” data with respect to
all of the comparable sales used in his capitalization analysis would
stifle the ability to challenge a tax assessment. In any event,
“opinion evidence of appraisers is competent evidence of [a
capitalization] rate” (Greater N.Y. Sav. Bank, 15 AD3d at 661; see
Addis Co., 79 AD2d at 857), and under these circumstances the use of
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opinion evidence to establish a capitalization rate is appropriate.
All concur except PERADOTTO and CARNI, JJ., who dissent and vote to
modify in accordance with the following Memorandum: We respectfully
dissent because, in our view, the conclusion of petitioner’s appraiser
with respect to his capitalization rate is legally and factually
flawed, and each flaw is independently fatal to petitioner’s case. We
thus conclude that petitioner failed to meet its ultimate burden of
establishing that the subject property is overvalued, and we would
therefore adopt the value set forth in respondents’ trial appraisal
and modify the order accordingly (see Matter of Thomas v Davis, 96
AD3d 1412, 1414).
The legal flaw underlying the capitalization rate analysis of
petitioner’s appraiser is that he relied on his “personal exposure” to
at least three of the four comparable properties to justify the
financial figures that he used to calculate his capitalization rate.
Although we agree with the majority that “opinion evidence of
appraisers is competent evidence of [a capitalization] rate” (Matter
of Greater N.Y. Sav. Bank v Commissioner of Fin., 15 AD3d 661, 661;
see Matter of Addis Co. v Srogi, 79 AD2d 856, 857, lv denied 53 NY2d
603), we conclude that such opinion evidence must still be supported
“by factual data supporting such rate” (Kurnick v State of New York,
54 AD2d 1098, 1098). An appraiser cannot simply list financial
figures of comparable properties in his or her appraisal report that
are derived from alleged personal knowledge; he or she must
subsequently “prove” those figures to be facts at trial (22 NYCRR
202.59 [g] [2]; see Matter of Niagara Mohawk Power Corp. v City of
Cohoes Bd. of Assessors, 280 AD2d 724, 727, lv denied 96 NY2d 719).
Petitioner’s appraiser, however, failed to offer any factual support
for the great majority of his figures. Thus, there was no way for
respondents’ counsel to conduct an adequate cross-examination of
petitioner’s appraiser with respect to those figures (see Matter of
Niagara Mohawk Power Corp. v Town of Bethlehem Assessor, 225 AD2d 841,
843). In the absence of any documentary or tangible evidence,
respondents’ counsel could not determine whether petitioner’s
appraiser accurately reported the financial figures of the allegedly
comparable properties, nor can we make such a determination.
Appraisal is not a novel or emerging profession; its
methodologies are not mysterious either in general or to this Court.
Countless other cases have come before this Court in which conflicting
expert appraisers have had no trouble collecting the data and
documents necessary to establish an evidentiary foundation for their
opinions with respect to a capitalization rate, and we do not see
anything remarkable here to excuse petitioner’s appraiser from that
task. Moreover, even if extenuating circumstances were present in
this case rendering it difficult for an appraiser to develop an
evidentiary foundation for an opinion, that fact would not cure the
defect in petitioner’s appraisal (see Matter of City of Rochester v
Iman, 51 AD2d 651, 652). Above all, we see no occasion here to take a
plain failure of proof and to extrapolate from it a new, relaxed
evidentiary standard in tax assessment cases based on the assumption
that to do otherwise would stifle petitions challenging tax
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assessments. Rules of evidentiary foundation are restrictive, and
intentionally so (see generally Wagman v Bradshaw, 292 AD2d 84, 91).
Even if we were to accept petitioner’s appraiser’s recitation of
the financial figures regarding the comparable properties based on his
prior professional involvement with those properties, it is evident
that the numerous precise, unrounded figures for, inter alia, gross
annual income, effective gross income, and net operating income that
he used came not from his memory, but rather from documents. At the
very least, those documents should have been included in his appraisal
and in the record before us (see generally Matter of Northern Pines
MHP, LLC v Board of Assessment Review of the Town of Milton, 72 AD3d
1314, 1316; Star Plaza v State of New York, 79 AD2d 746, 747).
Without such an evidentiary foundation, we conclude that the
unsupported financial figures used by petitioner’s appraiser are
simply hearsay and that such figures do not become admissible upon his
bare assertion that he saw them at some point in the past (see
generally Wagman, 292 AD2d at 86-87).
We further conclude that the capitalization rate of petitioner’s
appraiser is factually flawed inasmuch as he did not make appropriate
adjustments to the comparable properties used in calculating that
rate. The subject property’s units were built between 2003 and 2005,
while the four comparable properties were built in 1959, 1969, 1973,
and 1978, respectively. Additionally, most of the units in the
comparable properties were smaller than the units in the subject
property, some were even half the size of the subject property’s
units. Petitioner’s appraiser, however, failed to make any
adjustments for the marked differences in age, condition, and size
among the comparable properties’ units and the subject property’s
units.
We cannot agree with the majority’s conclusion that the failure
to adjust for such relevant, marketable characteristics as age and
size (see generally Matter of Bialystock & Bloom v Gleason, 290 AD2d
607, 608) is simply a matter of “weight to be given [petitioner’s]
appraisal.” We recognize that “[t]he suitability of comparable sales
is a matter resting within the sound discretion of the trial court”
and that differences in properties may be accounted for by adjustments
(Chase Manhattan Bank v State of New York, 103 AD2d 211, 222; see
Niagara Falls Urban Renewal Agency v 123 Falls Realty, 66 AD2d 1009,
1010, appeal dismissed 46 NY2d 997, lv denied 47 NY2d 711). Nor do we
question the general principle that “ ‘[comparability] does not . . .
connote . . . identity’ ” (Matter of Katz v Assessor of Vil./Town of
Mount Kisco, 82 AD2d 654, 658). Contrary to the majority, however, we
conclude that the degree of comparability “becomes a question of fact”
only where the differences between a subject property and comparable
properties have been explained and adjusted for value (Niagara Falls
Urban Renewal Agency, 66 AD2d at 1010). Inasmuch as the record does
not reflect any adjustment for the age and size of the comparable
properties’ units by petitioner’s appraiser, any consideration of
those factors by the Trial Referee or Supreme Court, or any basis for
this Court to make its own adjustments, we are compelled to conclude
that the purportedly comparable properties are incomparable as a
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matter of law. In other words, if weight of the evidence is the
standard to be applied (see National Fuel Gas Supply Corp. v
Goodremote, 13 AD3d 1134, 1135; Champlain Natl. Bank v Brignola, 249
AD2d 656, 657), we conclude that petitioner’s appraisal should be
accorded no weight.
To the extent that petitioner’s appraisal contains “lump-sum”
adjustments without breaking those adjustments down into specific
categories and quantities, we conclude that such adjustments are
improper because they do not afford an adequate basis for our review
(Matter of County of Dutchess [285 Mill St.], 186 AD2d 891, 892; see
also Geffen Motors v State of New York, 33 AD2d 980, 980).
We would therefore modify the order by reducing the aggregate
assessment to $5,080,000 and adopting respondents’ apportionment of
values among the subject units.
Entered: February 1, 2013 Frances E. Cafarell
Clerk of the Court