IN THE SUPREME COURT OF IOWA
No. 19–1582
Submitted February 22, 2022—Filed May 6, 2022
IN THE MATTER OF THE CONDEMNATION OF CERTAIN RIGHTS IN
LAND FOR THE EXTENSION OF ARMAR DRIVE PROJECT BY THE
CITY OF MARION, IOWA.
PHYLLIS M. RAUSCH, as Trustee of the WILLIAM J. RAUSCH FAMILY
TRUST,
Appellant,
vs.
CITY OF MARION, IOWA,
Appellee.
On review from the Iowa Court of Appeals.
Appeal from the Iowa District Court for Linn County, Patrick R. Grady,
Judge.
A property owner seeks further review of a court of appeals decision
affirming a condemnation award and the district court’s evidentiary rulings
precluding the owner from testifying about comparable sales. DECISION OF
COURT OF APPEALS VACATED; DISTRICT COURT JUDGMENT AFFIRMED.
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Waterman, J., delivered the opinion of the court, in which all justices
joined.
Dean A. Spina (argued) of Bradley & Riley PC, Cedar Rapids, for appellant.
Robert W. Goodwin (argued) of Goodwin Law Office, P.C., Ames; Kara L.
Bullerman of Allen, Vernon & Hoskins, P.L.C., Marion, for appellee.
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WATERMAN, Justice.
Landowners are generally allowed to give opinion testimony on the value
of their own property. But should owners of commercial property who do not
qualify as experts be allowed to support their valuation by testifying about
allegedly comparable sales of property owned by others? This appeal presents
that question. An Iowa municipality condemned part of the owner’s undeveloped
land for a road. The parties disagreed on the just compensation award. The
district court allowed the owner to testify to his opinion on the site’s reduction
in value resulting from the taking but granted the municipality’s motion in limine
barring his evidence of comparable sales on the grounds that the owner relied
on hearsay, lacked personal knowledge of those transactions, and was
unqualified as an expert. The property owner appealed, and the court of appeals
affirmed.
On our review, for the reasons explained below, we disagree with the
district court’s analysis on hearsay and personal knowledge. Public real estate
records are readily admissible into evidence and this owner gained personal
knowledge by reviewing the courthouse records and visiting the other properties.
But we affirm the exclusionary ruling because this owner, a former restaurant
manager, was not qualified as an expert under Iowa Rule of Evidence 5.702 to
offer opinion testimony that sales of other commercial property were comparable
where that opinion required technical or specialized knowledge. We decline to
impose a categorical rule disallowing lay owner opinion testimony about specific
comparable sales. On this record, the district court did not abuse its discretion
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by limiting the owner’s testimony given his lack of expertise and the complexity
of these commercial real estate valuations.
I. Background Facts and Proceedings.
In 1969, Phyllis and William Rausch bought a house on 20 acres of
farmland in Linn County. The Rausch family farmed the land and lived there
until 1977, when they turned the house into a rental property. In 1990, the Iowa
Department of Transportation condemned part of the land and left the family
with 9.57 acres. The house was removed from the land before 2017. The property
is now vacant, undeveloped land that is partially wooded with a steep ravine.
The site is ungraded and lacks commercial road access, although it is adjacent
to a divided four-lane highway. The property is zoned general commercial and is
located near the Lindale Mall development area.
The property is now owned by the William J. Rausch Family Trust (Trust).
After William’s death in 2002, Phyllis became the primary beneficiary of the Trust
and the trustee. According to the Trust’s attorney, Phyllis “receives all of the
income from the trust” and “can invade the principal for her health, education,
support and maintenance at her discretion.” But, “[s]he has not done so.” If
Phyllis passes away and the property remains in the Trust, the Trust property
will be divided evenly between William’s five children, one of whom is James
Rausch.
James had lived on the property with his family. He is forty-nine years old.
He has an English degree from Coe College. He has been a restaurant manager
since finishing college. He opened restaurants in Columbus, Ohio; Minneapolis,
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Minnesota; and Nashville, Tennessee. Two years before trial, he took a leave of
absence from this work and began taking care of his mother full-time. James
handles paying her bills, taking her to medical appointments, and arranging her
medications. He also manages her assets which include her home, a barbershop,
four rental houses, and over 700 acres of farmland that is leased out to a farmer.
Phyllis recently sold 76 acres at $37,000 an acre, and James studied other
properties in the area to determine where to reinvest the money to avoid paying
capital gains taxes through a section 1031 like-kind exchange. See 26 U.S.C.
§ 1031.
James is not an appraiser or real estate agent. He has never bought or
sold real estate himself. His only experience in buying and selling real estate
involved helping his mother buy two pieces of farmland.
In 2017, the City of Marion condemned part of the 9.57 acres owned by
the Trust to connect Armar Drive to Highway 100, Collins Road. The City took
0.63 acres to extend Armar Drive to intersect with the highway, which also
required a temporary construction easement of 0.76 acres. The road extension
split the property into two parts separated by Armar Drive: a small triangular
section (0.61 acres) and a larger section (8.33 acres). The Trust retained an
appraiser who opined the loss in value was $280,625. On March 29, the
compensation commission awarded $403,000 as just compensation, 44% higher
than the $280,625 figure put forward by the Trust’s appraiser in that proceeding.
Nonetheless, the Trust was dissatisfied with the result and sought $1 million in
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damages. The Trust did not retain an appraiser willing to testify to a higher
amount than $403,000.
The Trust appealed the commission’s award and demanded a jury trial.
The City responded, stating, “[T]he only appealable issue is the difference in fair
market value of the [property] immediately before and immediately after the
acquisition on March 29, 2017.” The district court entered a scheduling order
requiring expert disclosures by April 1, 2018, for the Trust, and by June 1, 2018,
for the City.
On May 4, after the Trust failed to designate an expert, the City moved for
summary judgment and to exclude any expert witnesses on behalf of the Trust.
The Trust resisted the motions. The City timely designated an expert who opined
that just compensation was $82,900. The Trust informed the district court that
it planned to call Phyllis to testify as to her opinion of value and to cross-examine
the City’s expert to prove its damages. The Trust filed Phyllis’s affidavit and
argued Phyllis’s health issues contributed to discovery delays and that the
exclusion of expert witnesses would be inappropriate. The City moved to strike
Phyllis’s affidavit. The district court denied the motions for summary judgment
and to strike the affidavit but granted the motion to exclude the Trust’s expert
witnesses.
On April 12, 2019, the City filed a motion in limine requesting that the
court exclude “[t]estimony or evidence of sales of real estate that are asserted by
the [Trust] to be comparable to the [property] unless a foundation is laid by the
[City’s] expert witness” and “[t]estimony or evidence by the assessor’s website of
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real estate comparable to the [property] because that would be on the
assumption that the assessor has the expertise to express an opinion of
comparability.” Two days later the Trust filed its pretrial statement identifying
James as a witness instead of Phyllis. Phyllis was unable to serve as a
representative of the Trust at trial because of her medical condition.
The City objected to the Trust’s designation of James and argued he was
not properly designated as an expert, nor was he qualified to testify as an expert.
The City further argued that an “[o]pinion testimony of a lay person concerning
comparable sales and values is not appropriate in a condemnation appeal.
Opinion testimony of a lay person must be based on firsthand knowledge of the
witness,” which James lacks because he was not “the buyer, or the seller or the
realtor involved in” the comparable sales included in the Trust’s exhibit list.
In a ruling five days before trial, the court prohibited James from testifying
about comparable sales because such testimony would not be “based on his
personal experience or familiarity with the transactions he wishes to call
comparable and his information about the market value of the subject property
is based on hearsay about how others valued the property at different times.”
The Trust submitted an offer of proof on three comparable sales. In his
deposition and offer of proof testimony at trial, James described his investigation
into the other sales using the assessor’s website to review the public real estate
records. He also visited each property. He compared each site’s highway access
to the Trust property and their location, size, sale price, and date of sale. He
testified that he found these sales while he was trying to help his mother reinvest
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proceeds from a sale of farmland, not at the request of the Trust’s attorney for
the condemnation proceeding. James conceded he otherwise had no “firsthand
personal knowledge” of the three sales and that he is not an appraiser or realtor.
The Trust’s offer of proof included warranty deeds for a “subdivision proceeding
or a tax parcel” and describes the three sales James considered comparable.
The first sale, the Fiesta Del Sol property, sold in September 2015 for
$580,000 (twenty-one dollars per square foot). It is located on Highway 100
about a half-mile away from the Rausch family’s property, closer to the Lindale
Mall development area. The new property owners demolished the structure on
the property to create vacant land on which to build retail stores. Highway access
was limited by a median, allowing traffic in only one direction to turn into the
property. The second sale, the UnityPoint property, was purchased as vacant
land in June 2016, with 3.23 acres, access to a divided four-lane highway
controlled by a traffic light, and a sale price of around $9 per square foot. The
land was fairly level with utilities. The new owners built medical offices on the
property. The third sale, the Kwik Star property, had 1.95 acres, which sold for
around $10 per square foot in July 2015. After the sale, the owners demolished
a bank to construct a gas station and convenience store. These properties were
located near Westdale Mall, which is the secondary shopping district for the area.
Jury trial commenced on August 19. The parties agreed that James could
testify as an owner. James testified to his background, his experience in helping
his mother manage her properties, and the condition of the property at issue
before and after the partial taking. But the district court renewed its ruling that
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James “is not qualified to testify as to comparable sales. That’s pretty clear. He’s
-- I will let him testify as to what he believes the value is and that it’s -- that he
got it from looking on the internet, but nothing about a specific sale.” James was
allowed to testify about the development activity in the area and opined how the
partial taking limited development opportunities for the Trust property. The
court barred James from testifying as to the three sales in his offer of proof or
any other allegedly comparable sales. James testified to his opinion that the
Trust land should be valued at $12 per square foot, or $522,720 per acre, and
that the fair market value of the property decreased by around $800,000 after
the partial taking.
During the Trust’s offer of proof, James was corrected by his own counsel:
Q. And you bought farmland?
A. Yeah.
Q. Do you recall approximately what the per acre price was?
A. It was -- The total was 576,000 for 115 acres. So it was -- I
don’t recall offhand. It was -- Almost 9,000 an acre, I believe.
Q. The number you said, that 115 acres is only about 5,000
an acre, you said?
A. Well, it was more than that.
At trial, James testified that he knew how to use the assessor’s website
and that he had pulled up from the website information on three real property
transactions involving land along Highway 100 that he believed were
comparable, although two of them were “across town.” He maintained that those
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comparable sales supported a value of $12 per square foot for the Trust’s land
along Highway 100.
The valuation testimony that James was allowed to give included the
following:
Q. Okay. You mentioned that, in your view, the property
before the taking had a value of 12 dollars a square foot. You said
that was including all of the area, the 9.57 acres, is that correct?
A. Yes.
Q. Do you know what that equates to in terms of a dollar
amount?
A. The five point -- five million and something.
Q. Roughly five million, you said?
A. Yes.
Q. Do you know what you believe the value of the property to
be after the taking?
A. 410 to ‘20 thousand. 420 thousand, around there.
Q. 400 -- Four million or --
A. I’m sorry. Four million and --
Q. Five million to four million?
A. Yes.
Q. Is that what you’re saying?
A. Yes.
Q. Is that rounding numbers?
A. Yeah. So like five million something minus like almost
700,000 maybe.
Q. So I need a number. What do you think?
A. It’s four million 300 thousand -- 200 thousand.
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Q. I don’t want to -- You choose the number that you think
it’s worth after the taking.
A. The 8.33 acres that’s left in that triangle portion, what it’s
worth?
Q. What is left to you is the triangle portion and the 8.33 acres
that’s left to the Rausch family. What is that worth after the taking,
viewing it --
A. Four million 200 thousand.
Q. Four million 200 thousand?
A. Sure.
Q. So the difference being roughly 800 thousand?
A. Yeah, roughly.
To support its case, the City called a certified appraiser. The appraiser’s
testimony emphasized that the Trust land was raw undeveloped land, with trees
on it, no grading, and no facilities. Later, the Trust’s attorney cross-examined
the City’s appraiser about the three comparable sales James had wanted to use.
The appraiser said he did not use any of them because they were all developed
lots; in fact, two of them had existing buildings. None of them involved
undeveloped land. The jury awarded the Trust $82,900 in damages, the exact
amount recommended by the City’s expert. The Trust appealed the resulting
judgment.
On appeal, the Trust argues the district court erred by excluding its
comparable sales evidence. The City argues the district court correctly permitted
James, as an owner, to give an opinion of value and excluded the Trust’s
comparable sales evidence because James lacked firsthand personal knowledge
of the sales and was unqualified to testify as an expert. The City does not
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challenge James’s status as an owner of the property based on his interest as a
contingent beneficiary. We transferred the case to the court of appeals, which
affirmed on the ground that James lacked personal knowledge of the comparable
sales. The Trust applied for further review, which we granted.
II. Standard of Review.
We review evidentiary rulings for abuse of discretion. Kurth v. Iowa Dep’t
of Transp., 628 N.W.2d 1, 5 (Iowa 2001) (en banc). “ ‘An abuse of discretion
occurs when the trial court “exercises its discretion on grounds clearly untenable
or to an extent clearly unreasonable.” ’ ” Id. (quoting State v. Greene, 592 N.W.2d
24, 27 (Iowa 1999), abrogated on other grounds by State v. Crawford, ___ N.W.2d
___, 2022 WL 815299 (Iowa Mar. 18, 2022)). Misapplying a rule of law is an abuse
of discretion. NuStar Farms, LLC v. Zylstra, 880 N.W.2d 478, 482 (Iowa 2016) (“A
ground is clearly untenable when the court relies on an improper legal standard
or applies the law in error.”). The district court has “wide latitude regarding
admissibility” and we will only reverse “where the losing party was prejudiced by
an unreasonable decision.” Kurth, 628 N.W.2d at 5 (quoting State v. Sallis, 574
N.W.2d 15, 16 (Iowa 1998)). “Generally, hearsay rulings are . . . reviewed for
errors at law.” Id.
III. Analysis.
We have long allowed landowners to testify about the value of their own
property. Holcomb v. Hoffschneider, 297 N.W.2d 210, 213 (Iowa 1980) (en banc)
(“In ascertaining the value of property, its owner is a competent witness to testify
as to its market value.”). This is known as “the property owner rule.” Reid Rd.
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Mun. Util. Dist. No. 2 v. Speedy Stop Food Stores, Ltd., 337 S.W.3d 846, 852–53
(Tex. 2011) (“Generally, a property owner is qualified to testify to the value of her
property even if she is not an expert and would not be qualified to testify to the
value of other property.”). “The rule is based on the presumption that an owner
will be familiar with her own property and know its value.” Id. at 853. But as we
show below, courts are divided on whether lay owners can testify about
comparable sales to support their valuations.
We have not revisited the property owner rule in condemnation cases since
Iowa adopted most of the Federal Rules of Evidence in 1983. The district court
is to perform a gatekeeper role in determining the admissibility of opinion
testimony on comparable sales. See Iowa R. Evid. 5.702. Key factors are the
owner’s valuation experience and the expertise required to evaluate the
purportedly comparable sales. By his own admission, James is not an expert on
commercial real estate valuations, and the district court so ruled.
We begin our analysis by examining the use of comparable sales. Next, we
will review the district court’s rulings excluding James’s evidence of other sales
on the grounds of hearsay and lack of personal knowledge. We will then confront
the dispositive issue of whether the district court abused its discretion by ruling
that James, a lay owner, was unqualified to testify about the three allegedly
comparable sales of commercial property.
A. Comparable Sale Evidence Generally. For partial takings, damages
are measured by “the difference in the fair market value of the subject property
immediately before and immediately after condemnation.” Van Horn v. Iowa Pub.
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Serv. Co., 182 N.W.2d 365, 371 (Iowa 1970) (quoting Jones v. Iowa State
Highway Comm’n, 144 N.W.2d 277, 280 (Iowa 1966)). We define fair market
value as “the price a willing buyer under no compulsion to buy would pay and a
willing seller under no compulsion to sell would accept.” Id. (quoting Jones, 144
N.W.2d at 280). A landowner “is damaged to the extent his property is diminished
in value by the condemnation” and has the burden to demonstrate he sustained
damage. Id. at 370–71 (quoting Jones, 144 N.W.2d at 280).
Thus, a landowner is permitted to show all competent facts which
an owner would properly and naturally press upon the attention of
a buyer with whom he is negotiating a sale and all other competent
facts which would naturally influence a person of ordinary prudence
desiring to purchase—not as affording a measure of recovery but as
tending to disclose the real character and condition of the property
and as support for the estimates of value given by the witnesses.
Id. at 371.
In condemnation cases, “[t]he rule as to competency of value witnesses is
to be liberally construed in favor of admissibility and if there is evidence of
knowledge of values the extent of the witness qualifications ordinarily goes to the
weight of the evidence rather than to its admissibility.” Iowa Dev. Co. v. Iowa
State Highway Comm’n (Iowa Dev. Co. II), 122 N.W.2d 323, 327 (Iowa 1963)
(allowing a corporate owner’s president to give a valuation opinion based in part
on the value of an adjacent lot, owned by a different party). Property owners are
permitted to give opinions on the value of their own property. See Kimmel v. Iowa
Realty Co., 339 N.W.2d 374, 380–81 (Iowa 1983) (“As owners of the property, the
plaintiffs could properly express their opinion as to these values.”); Redfield v.
Iowa State Highway Comm’n, 99 N.W.2d 413, 415 (Iowa 1959) (owner testified
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to the value of his land before and after a taking). Owners acquire knowledge of
property values through life experiences in managing, owning, and enjoying their
property.
Real estate valuations are commonly based on comparable sales. “It
should be kept in mind that evidence of comparable sales is germane to the
question of value before condemnation.” Belle v. Iowa State Highway Comm’n (In
re Primary Rd. 1–80), 126 N.W.2d 311, 314 (Iowa 1964). Since our decision
sixty-two years ago in Redfield v. Iowa State Highway Commission, “evidence of
comparable sales [is] admissible as substantive evidence of value.” Bus.
Ventures, Inc., v. Iowa City, 234 N.W.2d 376, 384 (Iowa 1975); see also Redfield,
99 N.W.2d at 416. “Like other evidence, it is for the jury to determine its weight
and credit.” Bus. Ventures, Inc., 234 N.W.2d at 384. “However, it must be shown
that there is sufficient similarity to the subject property before such evidence is
admissible.” Bellew v. Iowa State Highway Comm’n, 171 N.W.2d 284, 288 (Iowa
1969) (quoting Martinson v. Iowa State Highway Comm’n, 134 N.W.2d 340, 344
(Iowa 1965)).
To be considered comparable, the sales “need not be identical but must
have a resemblance in order to be shown in evidence.” Iowa Dev. Co. v. Iowa
State Highway Comm’n (Iowa Dev. Co. I), 108 N.W.2d 487, 492 (Iowa 1961). “Size,
use, location and character of the land and time, mode and nature of the sale all
have a bearing on the admissibility of such evidence.” Id. “While the properties
must be ‘similar’ enough that the sales assist the jury, we have noted, ‘Jurors
are men and women of the world, and when the differences between the
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properties are brought out in evidence . . . the jurors can make comparisons in
value.’ ” Bus. Ventures, Inc., 234 N.W.2d at 384 (omission in original) (quoting
Perry v. Iowa State Highway Comm’n, 180 N.W.2d 417, 420 (Iowa 1970)).
District courts have discretion to determine which sales are similar enough
to be admissible. Id.; Belle, 126 N.W.2d at 314 (“There was enough similarity in
the properties, however, so that the admission of the evidence was within the
discretion of the court.”); see also Redfield, 99 N.W.2d at 415 (noting large
differences in expert opinions “lends force to appellants’ claim that the actual
records of sales of comparable properties from which the witnesses gained their
knowledge are more reliable evidence than mere opinions of the experts”).
Comparable sales are admissible as substantive evidence.
Knowledge of a witness of other sales may be and frequently
is a foundation for opinion testimony, but evidence of actual sales
of comparable property is now substantive evidence as distinguished
from opinion testimony. It frequently happens, . . . that opinion
testimony and evidence of comparable sales comes from the same
witness. Evidence of comparable sales may be used to test the
qualification of an opinion witness and also as substantive evidence.
Belle, 126 N.W.2d at 314.
In sum, we have long recognized that property values are influenced by
the prices obtained in comparable sales, and liberally allow evidence of such
sales:
Everyone recognizes that the first thing a prospective buyer of any
kind of property wants to know is what other people have paid for
like property in the recent past. . . . But when the valuation of realty
is the problem, court and jury are suddenly cut off from informative
sources and forced to rely (theoretically) upon opinions based
principally upon undisclosed prices of other sales. . . . The main
objective of the rule—avoidance of collateral issues—has proved
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abortive and the procedural aspect of the trial has changed for the
worse.
Redfield, 99 N.W.2d at 418 (omissions in original) (quoting County of Los Angeles
v. Faus, 304 P.2d 257, 269–70 (Cal. Dist. Ct. App. 1956) (Ashburn, J.,
concurring) (encouraging reconsideration of the prohibition against the
presentation of comparable sales evidence on direct examination), vacated, 312
P.2d 680, 683–85 (Cal. 1957) (en banc) (overruling prohibition)).
The fighting issue in this case is whether James was qualified to establish
that the three sales of commercial property he identified were comparable.
Against this backdrop, we turn to the evidentiary rulings in this case.
B. The Hearsay Ruling. James’s exhibits in his offer of proof included
deeds for the other property sales from which the sale price could be calculated
within $500 based on the transfer tax paid. See Iowa Code § 428A.1(1) (2017)
(imposing transfer tax and requiring declaration of value to accompany deed);
see also id. § 428A.5 (requiring the amount of transfer tax to appear on the face
of the recorded instrument). The district court excluded evidence of James’s
other sales on hearsay grounds. But public records of real estate sales are readily
admissible into evidence through exceptions to the hearsay rule and by statute.
See Iowa Rs. Evid. 5.803(8)(A) (hearsay exception for public records), 5.803(14)
(hearsay exception for records of documents that affect an interest in property),
5.803(15) (hearsay exception for statements in documents that affect an interest
in property); see also Iowa Code § 622.36 (“Every instrument in writing affecting
real estate, . . . which is acknowledged or proved and certified as required, may
be read in evidence without further proof.”). See generally Iowa Rs. Evid. 5.901,
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5.902 (authentication of records). We conclude the district court erred by
excluding James’s testimony and evidence of comparable sales on hearsay
grounds.
C. The Personal Knowledge Ruling. The district court also excluded the
Trust’s evidence of comparable sales on the grounds that James lacked personal
knowledge because he was not the buyer, seller, or realtor in the other sales
transactions. James acquired his knowledge of the other sales by reviewing
public real estate records readily admissible into evidence and by personally
inspecting the other sites.
The personal knowledge requirement for lay witness testimony is set forth
in Iowa Rule of Evidence 5.602, which provides,
A witness may testify to a matter only if evidence is introduced
sufficient to support a finding that the witness has personal
knowledge of the matter. Evidence to prove personal knowledge may
consist of the witness’s own testimony. This rule does not apply to
a witness’s expert testimony under rule 5.703.
Rule 5.602’s personal knowledge requirement is easily satisfied. “Lay witnesses
may testify to their opinions or inferences if the testimony is rationally based on
the witness’s perceptions and it is helpful to giving the jury a clear understanding
of either the witness’s testimony or a determination of a fact at issue in the case.”
Whitley v. C.R. Pharmacy Serv., Inc., 816 N.W.2d 378, 390 (Iowa 2012); see also
Iowa R. Evid. 5.701 (lay witness opinion testimony). “[A] sufficient factual
foundation must be established showing the witness’s opinion is based on
firsthand knowledge and ‘personal knowledge of facts to which the observed facts
are being compared.’ ” Whitley, 816 N.W.2d at 390 (quoting 7 Laurie Kratky Doré,
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Iowa Practice Series: Evidence § 5.701:1, at 628–31 (2011 ed.)). James met the
required showing by reviewing the public land records and personally visiting
the properties.
In Whitley v. C.R. Pharmacy Service, Inc., the plaintiff in a medical
malpractice action argued the district court “abused its discretion by allowing
the pharmacy manager . . . to testify to his conclusion about the meaning of the
line through the name of [her doctor’s] receptionist that was written on the
delivery log.” 816 N.W.2d at 390. The pharmacy manager’s testimony was limited
to his conclusions “based on his knowledge of what a mark on delivery logs
typically meant in his experience with the pharmacy’s delivery system.” Id. We
concluded the plaintiff’s argument is essentially “that the court allowed a lay
witness to improperly opine about an ultimate issue at trial.”1 Id. We held the
district court did not abuse its discretion by permitting this lay opinion testimony
because “the pharmacy established [the manager] had personal knowledge of the
pharmacy’s delivery log procedures and that he conducted an investigation into
the logs and receipts in [the] case before reaching his conclusion.” Id. at 390–91.
The manager was not personally involved in any transactions; rather, he
reviewed the evidence of the transactions and provided his opinion.
Similarly, James was not personally involved in the transactions for each
identified sale but he reviewed information about each sale when trying to
1In condemnation cases, the ultimate issue is the amount of damage a landowner’s
property sustained as a result of the taking—not the value of other comparable properties.
Van Horn, 182 N.W.2d at 371 (“Value of the various tracts involved before condemnation is not
the ultimate issue. It is the starting point. But the question is how much each farm has been
damaged or reduced in value by the transmission installation and easement.”).
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reinvest proceeds from the sale of farmland. The Trust laid the foundation to
demonstrate his personal knowledge of the other sales. The district court erred
when it concluded James lacked personal knowledge because he was not “the
buyer, or the seller or the realtor involved in” the sales included in the Trust’s
exhibit list. See City of Grand Rapids v. H.R. Terryberry Co., 333 N.W.2d 123,
126–27 (Mich. Ct. App. 1983) (concluding the owners of condemned property
properly relied on comparable sales because the owners “had personally
inspected, at least briefly, each of those buildings” or were at least “familiar with
their exterior condition and the neighborhood in which they were located”); S.C.
State Highway Dep’t v. Wilson, 175 S.E.2d 391, 397 (S.C. 1970) (allowing
property owner’s testimony of comparable sales when her knowledge of such
sales was gained from reading abstracts of recorded deeds because “[w]here
comparable sales are in part a basis of the opinion as to value, even expert
witnesses, as often as not, do not have firsthand information, or personal
knowledge, thereabout” so the source of her knowledge went to “the weight of
the opinion evidence being offered rather than its competency or admissibility”).
D. Are Lay Property Owners Permitted to Testify about Comparable
Sales of Commercial Property? James admittedly is not an appraiser or
valuation expert. The district court ruled that James cannot support his
valuation opinion as the owner of the property by testifying about comparable
sales, because he is unqualified to do so. We have not previously addressed
whether lay owners can testify about specific comparable sales to support the
valuation of their own land.
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As noted above, a property owner generally is allowed to testify as to its
value. Their valuation can be a lay opinion under rule 5.701, which is
permissible because the owner is presumed to know their own property. See
generally U.S. ex rel. Tenn. Valley Auth. v. An Easement & Right-of-Way over 6.09
Acres, 140 F. Supp. 3d 1218, 1240–42 (N.D. Ala. 2015) (“[T]estimony by a witness
relating the value of his own land or property may be admissible as a lay
opinion.”) (surveying authorities). Rule 5.701 “does not distinguish between
expert and lay witnesses, but rather between expert and lay testimony.” Id. at
1241 (quoting Fed. R. Evid. 701 advisory committee’s note to 2000 amendments).
So whether owners can expand their testimony beyond their lay opinion of the
value of their property and testify about what they believe to be comparable sales
depends on the basis for that testimony. But an owner who relies on technical
or specialized knowledge to weigh in on comparable sales and how to make
adjustments to them in order to apply them to the valuation of the subject
property has moved into the realm of expert testimony and must qualify as such
under rule 5.702. See id. at 1241–44 (exploring the interplay between Federal
Rules of Evidence 701 and 702 on opinion testimony in condemnation cases);
see also State v. Boothby, 951 N.W.2d 859, 876, 876 n.2 (Iowa 2020) (discussing
the line between lay opinion testimony under Rule 701 and expert testimony
under Rule 702).
According to some authorities, “while property owners may always testify
as to their opinion concerning the value of their own property in a condemnation
action, they may not support that opinion by reference to comparable sales
22
unless they qualify as an expert.” 32 C.J.S. Evidence § 888, at 679–80 (2020);
see also Bennett v. Commonwealth, Dep’t of Highways, 417 S.W.2d 143, 145 (Ky.
1967) (explaining that, in order to testify using comparable properties, “the
owner of property must qualify the same as any other expert witness. Once he
does, there is no reason why he cannot cite sales of comparable property located
within the range of his expert knowledge”); 5 Julius L. Sackman, Nichols on
Eminent Domain § 23.03, at 23–30 (3d ed. 2013) (“Once the owner qualifies as
an expert witness, he may cite sales of comparable properties located within the
range of his expert knowledge.”). The point is: When a witness claims that a
certain sale is comparable and then claims that an adjustment needs to be made
(or does not need to be made) for valuation purposes, that in itself likely requires
an expert opinion. Certainly that is true of commercial property.
The Virginia Supreme Court’s recent decision of Helmick Family Farm,
LLC v. Commissioner of Highways illustrates this point. 832 S.E.2d 1 (Va. 2019).
In Helmick, Virginia’s highest court affirmed the trial court ruling excluding
documentary evidence of comparable land sales that Helmick sought to use as
evidence. Id. at 11–12. The Helmick court reasoned:
Generally, a landowner should be permitted to explain the basis for
his opinion of value, subject to cross-examination by the
Commissioner to expose flaws or ignorance concerning the property
owner’s valuation of property. However, Mr. Helmick was not
qualified or even offered as an expert appraiser. Given the wide
latitude the trial court afforded Mr. Helmick in his testimony, and
the fact that he was not testifying as an expert appraiser, we find no
abuse of discretion in the trial court’s handling of his testimony or
its refusal to admit the proffered exhibits into evidence.
23
Id. at 12. Notably, Helmick was not a restauranteur with limited real estate
experience like James. On the contrary, Helmick had “experience as a developer
of residential property for over two decades, and . . . worked as a licensed
contractor and licensed real estate broker.” Id. Still, the court allowed him
generally to testify that sales of nearby properties supported his valuation but
not to bring in specific comparables. See id. at 11–12.
Here too, the district court’s order did not bar James from claiming he had
relied on comparable sales but did bar him from introducing evidence of specific
so-called comparable sales. In our view, the district court struck the proper
balance by excluding James’s back-of-the-envelope comparable sales opinions.
James was not an expert. He had not been “purchasing and leasing various
commercial properties . . . for several decades” like the owner deemed qualified
as an expert in State ex rel. Missouri Highways & Transportation Commission v.
Boer, 495 S.W.3d 765, 770 (Mo. Ct. App. 2016).
Our rule 5.701, like Federal Rule of Evidence of 701, makes clear that
unless a witness is testifying as an expert, their opinions are limited to those
“[r]ationally based on the witness’s perception” and “[n]ot based on scientific,
technical, or other specialized knowledge within the scope of rule 5.702.” Iowa
R. Evid. 5.701. In discussing this language, the Advisory Committee notes state,
[M]ost courts have permitted the owner or officer of a business to
testify to the value or projected profits of the business, without the
necessity of qualifying the witness as an accountant, appraiser, or
similar expert. Such opinion testimony is admitted not because of
experience, training or specialized knowledge within the realm of an
expert, but because of the particularized knowledge that the witness
has by virtue of his or her position in the business.
24
Fed. R. Evid. 701 advisory committee’s note to 2000 amendments (citation
omitted). As with the business owner, so too with a real property owner. The
property owners’ conclusions as to value are admissible into evidence not
because the owners are experts, but because they are the owners. Thus, for the
same reasons that we would not let a typical restaurant manager come into court
and opine that certain sales of commercial property are comparable, the district
court did not abuse its discretion by refusing to allow James to do so.
We recognize that many owners or prospective owners of real estate
evaluate comparable sales to determine a property’s value. This is true for
first-time home buyers, homeowners considering downsizing, and investors in
the business of flipping houses. Farmers often have accurate opinions of the
value of their farmland based on the per acre price for other farms sold in the
area. Owners of undeveloped land likewise make investment decisions after
ascertaining the sale price of similar undeveloped land nearby.
In some cases, under Iowa Rule 5.701 or 5.702, the record may support
allowing the owner to support their opinion of the value of their own property by
testifying about specific comparable sales. See generally 6.09 Acres, 140
F. Supp. 3d at 1242 (explaining that “lay testimony ‘results from a process of
reasoning familiar in everyday life’ whereas expert testimony ‘results from a
process of reasoning which can be mastered only by specialists in the field’ ”
(quoting Fed. R. Evid. 701 advisory committee’s note to 2000 amendments)). “If
an owner’s testimony on value is based not upon commonly understood
considerations of worth flowing from his perceptions and knowledge of his
25
property but instead upon technical or specialized knowledge more broadly, it
crosses into expert testimony for purposes of Rule 702 . . . .” Id. We decide only
the case before us, involving a former restaurant manager’s attempt to rely on
sales of developed commercial property to support his valuation of his own
undeveloped land. In our view, selecting comparable sales of developed
commercial real estate requires a qualified expert, which James is not.
Another court aptly emphasized the complexity involved in comparing
sales of commercial property:
The instant matter concerned commercial property values. There are
several factors that may more-significantly affect commercial
property values such as zoning designations, location,
income/expense analysis, and traffic patterns and volume. Thus,
the opinion as to whether two commercial properties are comparable
for purposes of real estate appraisals is an inquiry that is beyond
the knowledge and understanding of a typical lay person.
City of Kent v. Atkinson, No. 2010–P–0084, 2011 WL 6016549, at *7 (Ohio Ct.
App. Dec. 5, 2011) (affirming a decision to exclude evidence of other sales where
the owner “did not present an expert, did not attempt to establish himself as an
expert, and did not seek a continuance in order to obtain an expert”). The same
is true here.
The opinion that a sale of developed commercial land is “comparable” to
the plaintiff’s undeveloped land is an expert opinion, not a lay opinion, and it
requires an expert to deliver it. District courts routinely determine whether
someone is qualified to offer expert testimony, and it is pretty easy to tell from
this record that James was not.
26
Some courts have allowed nonexpert landowners to testify about
comparable sales to support their valuation of their own property. See, e.g., H.R.
Terryberry Co., 333 N.W.2d at 126–27; Clark v. Miss. Transp. Comm’n, 767 So. 2d
173, 178 (Miss. 2000) (en banc) (permitting the property owner to testify to
comparable sales without showing firsthand knowledge of the sales because the
owner was a longtime resident and testified that he was “familiar” with sales of
industrial property in the area); Boer, 495 S.W.3d at 769–70 (holding the
landowner was qualified to testify about comparable sales despite “his lack of
any appraisal training or certification” because he “had some specialized
knowledge by living in, and purchasing and leasing various commercial
properties in [the] County” and his specific familiarity with the two comparable
sales, “including property details and the amounts for which they sold”); City of
Cincinnati v. Banks, 757 N.E.2d 1205, 1221 (Ohio Ct. App. 2001) (“Evidence
elicited on cross-examination suggesting the noncomparable nature of the
property upon which Banks based her opinion might have functioned to
undermine her credibility but it did not provide a basis for the exclusion of her
opinion.”); Wilson, 175 S.E.2d at 397; see also D.C. Redevelopment Land
Agency v. Thirteen Parcels of Land, 534 F.2d 337, 341–44 (D.C. Cir. 1976)
(holding district court erred by excluding landowner’s opinion testimony based
in part on his experience with another commercial property and stating that
“such factors as the differences in size, frontage and location of the two
properties go to the weight of the owner’s testimony regarding suitability and not
to its admissibility”). The Boer court elaborated as follows:
27
No exact formula exists for judging the competency of a
witness to give an opinion on real estate values. To qualify as such
an expert, it is not necessary that the witness be engaged in the real
estate business. If the witness is capable of forming a better opinion
on values than the jury or men in general because he is acquainted
with the land in question, professes to know its value, has
knowledge of and opportunity to learn the worth of similar property
in the vicinity, and has participated in or has information
concerning the sale of like real estate, he is usually considered
competent to state an opinion.
495 S.W.3d at 769–70 (quoting State ex rel. State Highway Comm’n v. Heim, 483
S.W.2d 410, 413–14 (Mo. Ct. App. 1972)). James could not clear this low bar.2
In our view, the admissibility of lay owner opinion testimony on
comparable sales should be made on a case-by-case basis. Some valuations may
be too complex for a lay witness owner to present to a jury. Our review is for
abuse of discretion. The district court in this case did not abuse its discretion by
ruling that James, the owner of undeveloped land and former restaurant
manager with limited real estate experience, was unqualified to testify about
specific allegedly comparable sales of developed commercial property.
IV. Disposition.
For these reasons, we vacate the decision of the court of appeals and affirm
the district court judgment.
DECISION OF COURT OF APPEALS VACATED; DISTRICT COURT
JUDGMENT AFFIRMED.
2The legislature has provided an incentive for landowners to use appraisers in contested
condemnation cases. See Iowa Code § 6B.33 (allowing owner to recover the reasonable cost of
one appraisal from the acquiring agency if the commissioners awarded an amount more than
10% above the agency’s final offer or if the court awards a higher amount).