2018 WI 4
SUPREME COURT OF WISCONSIN
CASE NO.: 2016AP21
COMPLETE TITLE: Metropolitan Associates,
Plaintiff-Appellant-Petitioner,
v.
City of Milwaukee,
Defendant-Respondent.
REVIEW OF A DECISION OF THE COURT OF APPEALS
Reported at 373 Wis. 2d 310, 895 N.W.2d 104
(2017 – Unpublished)
OPINION FILED: January 10, 2018
SUBMITTED ON BRIEFS:
ORAL ARGUMENT: September 15, 2017
SOURCE OF APPEAL:
COURT: Circuit
COUNTY: Milwaukee
JUDGE: Jeffrey A. Conen and Dennis P. Moroney
JUSTICES:
CONCURRED:
DISSENTED: R.G. BRADLEY, J. and KELLY, J. dissent (opinion
filed).
NOT PARTICIPATING:
ATTORNEYS:
For the plaintiff-appellant-petitioner, there were briefs
filed by Alan Marcuvitz, Nicholas J. Boerke, and Von Briesen &
Roper, S.C., Milwaukee. There was an oral argument by Nicholas
J. Boerke and Alan Marcuvitz.
For the defendant-respondent, there was a brief filed by
Grant F. Langley, city attorney, and Allison N. Flanagan,
assistant city attorney. There was an oral argument by Allison
N. Flanagan.
An amicus curiae brief was filed on behalf of League of
Wisconsin Municipalities by Claire Silverman and League of
Wisconsin Municipalities, Madison.
2
2018 WI 4
NOTICE
This opinion is subject to further
editing and modification. The final
version will appear in the bound
volume of the official reports.
No. 2016AP21
(L.C. No. 2009CV9871)
STATE OF WISCONSIN : IN SUPREME COURT
Metropolitan Associates,
Plaintiff-Appellant-Petitioner,
FILED
v.
JAN 10, 2018
City of Milwaukee,
Diane M. Fremgen
Defendant-Respondent. Clerk of Supreme Court
REVIEW of a decision of the Court of Appeals. Affirmed.
¶1 ANN WALSH BRADLEY, J. The petitioner, Metropolitan
Associates (Metropolitan), seeks review of an unpublished court
of appeals decision affirming the circuit court's determination,
which in turn affirmed the City of Milwaukee's (the City) tax
assessment of property owned by Metropolitan.1 Metropolitan
contends that the court of appeals erred in concluding that the
1
Metro. Assocs. v. City of Milwaukee, No. 2016AP21,
unpublished slip op., (Wis. Ct. App. Dec. 8, 2016) (affirming
order of circuit court for Milwaukee County, Jeffrey A. Conen
and Dennis P. Moroney, JJ.).
No. 2016AP21
City complied with Wis. Stat. § 70.32(1) (2013-14)2 in its
assessment of Metropolitan's property.
¶2 Specifically, Metropolitan argues that the City
contravened Wis. Stat. § 70.32(1) because it failed to utilize
the "best information" available when it relied on mass
appraisal, and not single-property appraisal, in determining the
value of Metropolitan's property. Metropolitan additionally
asks this court to reject the findings of the circuit court
regarding the reliability of the competing assessment evidence
and the weight and credibility the circuit court attributed to
that evidence. Ultimately, it argues that the application of
the presumption of correctness to the City's assessment based on
a mass appraisal constitutes an error of law.
¶3 We conclude that the City's assessment of
Metropolitan's property complied with Wis. Stat. § 70.32(1).
The City permissibly utilized mass appraisal for its initial
assessment and appropriately defended its initial assessment
with single property appraisals demonstrating that the
assessment was not excessive.
¶4 Next, we decline Metropolitan's request to upset the
circuit court's findings of fact. As the court of appeals aptly
stated, "[i]n asking us to reject the court's judgment as to the
weight and credibility of the competing assessment evidence,
Metropolitan effectively asks us to substitute our judgment for
2
All subsequent references to the Wisconsin Statutes are to
the 2013-14 version unless otherwise indicated.
2
No. 2016AP21
the circuit court's regarding the credibility of witnesses and
the relative weights to assign to various pieces of the evidence
at trial, neither of which we can do."3
¶5 We conclude that the circuit court's findings of fact
regarding the reliability of the respective appraisals are not
clearly erroneous. Because the circuit court's findings are
sufficient to support its determination regardless of whether
the presumption of correctness was employed, we need not address
whether the presumption of correctness attached to the
assessment based on the initial mass appraisal.
¶6 Accordingly, we affirm the decision of the court of
appeals.
I
¶7 The facts presented arise from the City's assessments
of seven properties owned by Metropolitan for the tax years
2008-2013. Metropolitan objected that the assessments were
excessive, initially appealing to the City's Board of Assessors
and Board of Review. The Board of Assessors and Board of Review
both upheld the assessments. Metropolitan then brought an
excessive assessment action in the circuit court.
¶8 Both parties agreed to present evidence on only one of
the seven Metropolitan properties, the Southgate Apartments, and
to focus exclusively on the tax years 2008-2011. They further
agreed that the resolution of the Southgate Apartments
3
Metro. Assocs. v. City of Milwaukee, No. 2016AP21,
unpublished slip op., ¶35 (Wis. Ct. App. Dec. 8, 2016).
3
No. 2016AP21
assessment would control the resolution of Metropolitan's
challenges to the other six properties' assessments.
¶9 The Southgate Apartments were initially assessed by
the City using a "mass appraisal" technique. At trial, the City
assessor, Peter Weissenfluh, testified that "[m]ass appraisal is
a technique used by probably the majority of assessment
jurisdictions in the nation. It is a process whereby an
assessor values entire groups of property using systematic
techniques and allowing for statistical testing."
¶10 Mass appraisal stands in contrast to single property
appraisal. Weissenfluh testified that single property appraisal
"is looking at the individual properties and determining the
full fair market value of that individual property with more
detail and more . . . individual analysis . . . ."
¶11 Single property appraisals are conducted by what
Weissenfluh described as a "three-tier valuation technique."
The three "tiers" of analysis provide a hierarchy of what
constitutes the best evidence of fair market value. Pursuant to
a "tier 1" analysis, the best evidence of value is a recent sale
of the subject property.
¶12 Weissenfluh explained that there were no recent sales
of the Southgate Apartments. Because no tier 1 evidence was
available, he then moved to a "tier 2" analysis, also known as a
"sales comparison" approach.
¶13 A tier 2 analysis examines any sales of reasonably
comparable property. Under this approach, as Weissenfluh
testified, an assessor "surveys the market to determine
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No. 2016AP21
comparable sales. In that process many sources are used." The
assessor then selects comparable properties relying on such
factors as location and use, adjusting the sale price based on
particular physical characteristics of the properties.
¶14 Weissenfluh testified that he completed a tier 2
analysis to assess the Southgate Apartments. Through this
analysis, he ultimately arrived at a value higher than that
produced with the initial mass appraisal.
¶15 If there is no information from which to conduct
either a tier 1 or tier 2 analysis, the assessor moves to a
"tier 3" analysis. A tier 3 analysis takes into account other
characteristics of the property, such as the amount of income it
generates and the cost to maintain it.
¶16 Weissenfluh conducted a tier 3 income analysis "to
confirm that the sales comparison approach made sense." He
further testified that his income analysis validated the results
of the sales comparison analysis, confirming that the initial
mass appraisal was not excessive.
¶17 Metropolitan responded by presenting the testimony of
its appraiser, Lawrence Nicholson. He also conducted both tier
2 and tier 3 analyses of the Southgate Apartments. Nicholson
concluded, contrary to Weissenfluh's determination, that the
Southgate Apartments had a value lower than that reflected in
the City's initial mass appraisal.
¶18 After a two-day bench trial, the circuit court
rendered a written decision affirming the City's initial
assessments. The circuit court determined first that the City
5
No. 2016AP21
complied with Wis. Stat. § 70.32(1) and the Wisconsin Property
Assessment Manual (the Manual) by conducting a mass appraisal of
the Southgate Apartments.
¶19 Second, the circuit court found that the City's tier 2
and 3 valuations were "more reliable" than Metropolitan's.
Specifically, the circuit court determined that "[t]he City's
sales comparison approach is more reliable than Metropolitan's
approach" because Metropolitan made "adjustments based solely on
the properties' net operating income[]." In so doing,
Metropolitan "conflate[d] the sales comparison and income
approaches."
¶20 Further, the circuit court found that "[t]he City's
income approach was more reliable than Metropolitan's approach."
The City's income approach correctly adjusted for Metropolitan's
expense ratio, which was "markedly higher than the expense
ratios for similar properties in the market." As the circuit
court highlighted, "[t]he market trend is to maintain a lower
expense ratio, and the City's income approach accounted for
this."
¶21 On appeal, Metropolitan argued that the circuit court
erred in concluding that Metropolitan failed to rebut the
presumption of correctness to which City assessments are
entitled. Specifically, it asserted that (1) the City's initial
assessments were invalid as a matter of law because the City
assessor used the mass appraisal method and not the three-tier
technique; (2) the City assessor's tier 2 and 3 assessments were
conducted in a manner contrary to Wisconsin assessment law in
6
No. 2016AP21
that the City assessor ignored the individual economic
characteristics of the Southgate Apartments property; and (3)
the circuit court erred in its determination that the City
assessor's methods were more reliable than those of
Metropolitan's assessor.
¶22 The court of appeals rejected Metropolitan's
arguments. It concluded that the Wisconsin Property Assessment
Manual explicitly encourages assessors to use mass appraisal.
Metro. Assocs. v. City of Milwaukee, No. 2016AP21, unpublished
slip op., ¶20 (Wis. Ct. App. Dec. 8, 2016). Next, it determined
that the City assessor's sales comparison and income analyses
were conducted in accordance with Wisconsin law. Id., ¶33.
Finally, it opined that the circuit court's determination
regarding the reliability of each assessor's methods was a
credibility determination that the court of appeals would not
upset on appeal. Id., ¶35.
II
¶23 In this case we are asked to review a tax assessment
made in an action for refund of excess property taxes paid
pursuant to Wis. Stat. § 74.37(3)(d).4 An action under § 74.37
4
Wis. Stat. § 74.37(3)(d) provides:
If the taxation district or county disallows the
claim, the claimant may commence an action in circuit
court to recover the amount of the claim not allowed.
The action shall be commenced within 90 days after the
claimant receives notice by registered or certified
mail that the claim is disallowed.
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No. 2016AP21
is a new trial, not a certiorari action. Trailwood Ventures,
LLC v. Vill. of Kronenwetter, 2009 WI App 18, ¶6, 315
Wis. 2d 791, 762 N.W.2d 841. Accordingly, we review the circuit
court's determination, not that of the assessor or Board of
Review. Id.
¶24 In review, we interpret and apply Wis. Stat. § 70.32
to determine whether the appraisal at issue followed the
statutory directives. Regency W. Apartments LLC v. City of
Racine, 2016 WI 99, ¶22, 372 Wis. 2d 282, 888 N.W.2d 611.
Statutory interpretation and application present questions of
law that this court reviews independently of the determinations
rendered by the circuit court and court of appeals. Id.
¶25 We do, however, defer to a circuit court's findings of
fact. Royster-Clark, Inc. v. Olsen's Mill, Inc., 2006 WI 46,
¶11, 290 Wis. 2d 264, 271, 714 N.W.2d 530, 534 (citation
omitted). Factual findings made by the circuit court will not
be disturbed unless they are clearly erroneous. Emp'rs Ins. of
Wausau v. Jackson, 190 Wis. 2d 597, 613, 527 N.W.2d 681 (1995).
It is within the province of the factfinder to determine the
weight and credibility of expert witnesses' opinions. Bonstores
Realty One, LLC v. City of Wauwatosa, 2013 WI App 131, ¶6, 351
Wis. 2d 439, 839 N.W.2d 893 (citation omitted).
III
¶26 Metropolitan argues first that the City's assessments
do not comply with Wis. Stat. § 70.32(1), which provides in
relevant part:
8
No. 2016AP21
Real property shall be valued by the assessor in the
manner specified in the Wisconsin property assessment
manual provided under s. 73.03(2a) from actual view or
from the best information that the assessor can
practicably obtain . . .
Specifically, Metropolitan contends that the City did not use
the "best information" available when it relied on mass
appraisal rather than single property appraisal. The argument
centers on the meaning of "best information that the assessor
can practicably obtain."
¶27 In its initial briefing,5 Metropolitan asserts that the
"best information" on which to base an assessment is not that
which informs a mass appraisal, but instead is information
underlying a single property appraisal pursuant to the three
tiers of analysis under State ex rel. Markarian v. City of
Cudahy, 45 Wis. 2d 683, 173 N.W.2d 627 (1970).
¶28 Wisconsin Stat. § 70.32(1) explicitly directs that
property be assessed "in the manner specified in the Wisconsin
property assessment manual." The Manual provides that
"[c]ommercial property can be valued by either single property
or mass appraisal techniques." 1 Wisconsin Property Assessment
Manual (2009) at 9-5.6
5
Although in its initial brief Metropolitan appeared to
cast aspersions on mass appraisal as a whole, it conceded in its
reply brief and at oral argument that it is not asking the court
to "completely discard mass appraisal techniques." Metropolitan
thus recognized that the information underlying a mass appraisal
may constitute the best information available at the initial
assessment stage. See Pet'r Reply Brief at 2.
6
All references to the Wisconsin Property Assessment Manual
are to the 2009 version unless otherwise noted.
9
No. 2016AP21
¶29 "Mass appraisal is the systematic appraisal of groups
of properties, as of a given date, using standardized procedures
and statistical testing." 1 Wisconsin Property Assessment
Manual at 7-32. The Manual provides for assessors utilizing
mass appraisal in initial assessments: "Mass appraisal is the
underlying principle that Wisconsin assessors should be using to
value properties in their respective jurisdictions." Id.
¶30 Mass appraisal stands in contrast to single property
appraisal, which is the valuation of a single particular
property as of a given date. Id. A single property appraisal
focuses on the unique characteristics of the subject property
within the strictures of the methodology set forth in Markarian,
45 Wis. 2d 683.
¶31 In Markarian, we addressed a landowner's challenge to
the City of Cudahy's assessment of his property. 45 Wis. 2d at
684. We interpreted Wis. Stat. § 70.32(1)7 to set forth a
hierarchical valuation methodology for single-property
appraisal. Id. at 686. The text of the statute lists three
sources of information in a specific order, with the court in
7
Wis. Stat. § 70.32(1), as relevant here, provides:
In determining the value, the assessor shall consider
recent arm's-length sales of the property to be
assessed if according to professionally acceptable
appraisal practices those sales conform to recent
arm's-length sales of reasonably comparable property;
recent arm's-length sales of reasonably comparable
property; and all factors that, according to
professionally acceptable appraisal practices, affect
the value of the property to be assessed.
10
No. 2016AP21
Markarian clarifying this order as indicative of the quality of
the information each source provides. Id. This methodology has
been further described in the courts as providing for three
"tiers" of analysis. See, e.g., Allright Props., Inc. v. City
of Milwaukee, 2009 WI App 46, ¶¶20-30, 317 Wis. 2d 228, 767
N.W.2d 567.
¶32 The best information of a property's fair market value
is an arm's-length sale of the subject property. Markarian, 45
Wis. 2d at 686; Regency W., 372 Wis. 2d 282, ¶27. Examination
of a recent arm's-length sale is known as a "tier 1" analysis.
Allright Props., 317 Wis. 2d 228, ¶21.
¶33 If there is no recent sale of the subject property,
the appraiser moves to tier 2, examining recent, arm's-length
sales of reasonably comparable properties (the "sales comparison
approach"). Markarian, 45 Wis. 2d at 686; Allright Props., 317
Wis. 2d 228, ¶22.
¶34 When both tier 1 and tier 2 are unavailable, an
assessor then moves to tier 3. See Allright Props., 317
Wis. 2d 228, ¶29. Under tier 3, an assessor "may consider 'all
the factors collectively which have a bearing on value of the
property in order to determine its fair market value.'" Adams
Outdoor Advert., Ltd., v. City of Madison, 2006 WI 104, ¶35, 294
Wis. 2d 441, 717 N.W.2d 803 (quoting Markarian, 45 Wis. 2d at
686). These factors include "cost, depreciation, replacement
value, income, industrial conditions, location and occupancy,
sales of like property, book value, amount of insurance carried,
value asserted in a prospectus and appraisals produced by the
11
No. 2016AP21
owner." State ex rel. Mitchell Aero, Inc. v. Bd. of Review of
City of Milwaukee, 74 Wis. 2d 268, 278, 246 N.W.2d 521 (1976)
(citations omitted). Both the income approach, which seeks to
capture the amount of income the property will generate over its
useful life, and the cost approach, which seeks to measure the
cost to replace the property, fit under the umbrella of tier 3
analysis. Adams Outdoor Advert., 294 Wis. 2d 441, ¶35.
¶35 Metropolitan's argument that the "best information"
must necessarily be the information underlying a single property
appraisal and not a mass appraisal is unpersuasive for two
reasons. First, property must be assessed "in the manner
specified in the Wisconsin property assessment manual." Wis.
Stat. § 70.32(1). It allows assessors to conduct mass
appraisal. 1 Wisconsin Property Assessment Manual at 7-32.
Second, Metropolitan's argument does not give full effect to the
word "practicably" in § 70.32(1).
¶36 The Manual outlines the division of labor between mass
appraisal and single property appraisal, demonstrating when the
use of each method is appropriate:
The assessor needs skills in both mass appraisal and
single property appraisal. Mass appraisal skills for
producing initial values, whether during a reappraisal
year or not, and single property appraisal skills to
defend specific property values or to value special-
purpose properties that do not lend themselves to mass
appraisal techniques.
1 Wisconsin Property Assessment Manual at 7-32.
¶37 Metropolitan acknowledged in its reply brief and at
oral argument that mass appraisal is appropriate in certain
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No. 2016AP21
circumstances. Namely, Metropolitan recognized that at the
initial assessment stage, mass appraisal may comprise the best
information for all properties being assessed en masse.
¶38 The Manual makes clear that mass appraisal is accepted
at the initial assessment stage. It likewise sets forth when a
single property appraisal is warranted. A single-property
appraisal is necessary (1) after the initial mass appraisal has
been challenged by the taxpayer or (2) if the property being
valued is a "special-purpose" property that does not lend itself
well to mass appraisal.8 See 1 Wisconsin Property Assessment
Manual at 7-32. The express language of the Manual indicates
that mass appraisal is a proper method of valuation in all other
circumstances.
¶39 Requiring a single property appraisal after a taxpayer
challenges an assessment does not mean that the value of the
property must be set in accordance with the single property
appraisal. Indeed, this could not be the case when the
subsequent single property appraisal is higher than the initial
mass appraisal. In Trailwood Ventures, the court of appeals
determined that Wis. Stat. §§ 74.37 and 74.399 do not permit the
8
There has been no argument advanced here that the
Southgate Apartments are a "special-purpose" property.
Accordingly, we will not address the second exception to the
general rule in favor of mass appraisal.
9
Wisconsin Stat. § 74.37 sets forth rules and procedures
for excessive assessment actions. Wis. Stat. § 74.39 permits a
court to order reassessment of a property if it is deemed
necessary. Trailwood Ventures, LLC v. Vill. of Kronenwetter,
2009 WI App 18, ¶8, 315 Wis. 2d 791, 762 N.W.2d 841.
13
No. 2016AP21
court to impose a greater tax burden than the one the taxpayer
challenges. 315 Wis. 2d 791, ¶10.
¶40 The question on appeal in a Wis. Stat. § 74.37 action
is not whether the initial assessment was incorrect, but whether
it was excessive. Accordingly, Weissenfluh testified at trial
as follows:
Q: And you're not asking that the assessment be
changed to the sales comparison approach value,
correct?
A: No. The assessment cannot be changed at this
level. All I'm showing is that my work supports the
original assessment and I conclude, therefore, that
the assessment as made was not excessive.
The value reflected in the initial mass appraisal can thus
constitute the value of the property for tax assessment purposes
as long as it is not excessive.
¶41 Further, disallowing mass appraisal as the basis for
the City's valuation in this case would not give full effect to
the word "practicably" in Wis. Stat. § 70.32(1). Wisconsin
Stat. § 70.32(1) dictates that an assessment must be based on
"the best information that the assessor can practicably obtain"
(emphasis added).
¶42 "[S]tatutes should be so construed that no word or
clause shall be rendered surplusage." Milwaukee Cty. v. Dep't
of Indus., Labor & Human Relations Comm'n, 80 Wis. 2d 445, 452-
53, 259 N.W.2d 118 (1977) (quoting Cook v. Indus. Comm'n, 31
Wis. 2d 232, 240, 142 N.W.2d 827 (1966)). A blanket disavowal
of mass appraisal would render the word "practicably"
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No. 2016AP21
superfluous. It would not be practicable to require a single
property appraisal of every parcel in the state.
¶43 Completing annual assessments in a major metropolitan
area would simply not be feasible without the use of mass
appraisal. As Weissenfluh testified at trial, "[i]n Milwaukee
we have 150,000 properties. Without mass appraisal it's a job
that simply could not be done [] especially on an annual
basis."10
¶44 Mass appraisal is equitable and efficient. 1
Wisconsin Property Assessment Manual at 7-32. Additionally,
mass appraisal is widely used throughout the country. See,
10
The dissent recognizes that assessing every single
property in the City of Milwaukee every year is "at the very
least, a daunting prospect," but would nevertheless mandate that
the task be completed. Dissent, ¶97. However, it appears to
rest on the flawed assumptions that the information needed to
conduct a single property appraisal is both reliable and
("practicably") available in all instances. This is problematic
for two reasons.
First, the dissent assumes that the City should trust the
data submitted by Metropolitan, which the circuit court
specifically determined was not reliable. Second, it assumes
that the information necessary to conduct a tier 2 valuation was
available to the City because it brought such a valuation to
trial and because Metropolitan provided it with information to
conduct such an analysis. Id. To say that the City can
practicably obtain the information because Metropolitan gave it
to them is to accept without scrutiny the data provided by a
self-interested party. Importantly, we observe that the City
brought a tier 2 valuation to trial solely to defend its mass
appraisal. It was forced to compile the information necessary
to conduct a tier 2 analysis only because Metropolitan
challenged the initial mass appraisal. As Weissenfluh
testified, it would not be practicable for the City to do this
for every property, every year.
15
No. 2016AP21
e.g., C.P. & Son, Inc. v. Bd. of Cty. Comm'rs of Cty. of
Boulder, 953 P.2d 1303, 1304-05 (Colo. App. 1998); Walsh v.
State Prop. Tax Appeal Bd., 677 N.E.2d 489, 493 (Ill. App. Ct.
1997); In re Johnson Cty. Appraiser/Privitera Realty Holdings,
283 P.3d 823, 828 (Kan. Ct. App. 2012); Revenue Cabinet, Com. of
Ky. v. Gillig, 957 S.W.2d 206, 209 (Ky. 1997); Darnall Ranch,
Inc. v. Banner Cty. Bd. of Equalization, 753 N.W.2d 819, 827
(Neb. 2008); Appeal of Wagstaff, 255 S.E.2d 754, 756 (N.C. Ct.
App. 1979); Gray v. Wyoming State Bd. of Equalization, 896
P.2d 1347, 1349 (Wyo. 1995). While our conclusion is not
dependent on the practices in other jurisdictions, an
examination of such practices demonstrates that our approach in
endorsing mass appraisal does not make Wisconsin an outlier.
¶45 At the initial assessment stage, the best information
the City can "practicably" obtain is often that underlying a
mass appraisal. Because its use is provided for by the Manual
and it allows the City to efficiently assess a large number of
properties, mass appraisal comports with Wis. Stat. § 70.32(1).
We thus reaffirm that mass appraisal is appropriately utilized
as a manner of valuing property under § 70.32(1).
¶46 Although subject to modification, the Manual sets
forth the procedures to be used. Wisconsin Stat. § 70.32(1)
directs the use of the Manual. The value reflected in the
initial mass appraisal can constitute the value of the property
for tax assessment purposes as long as it is not excessive.
16
No. 2016AP21
¶47 Our recent decision in Regency W., 372 Wis. 2d 282,
does not alter this conclusion. In Regency W., we determined
that the City of Racine:
chose not to employ [] information [regarding
projected expenses and income] and chose instead to
calculate the [net operating income] for its income-
based valuation through mass appraisal techniques that
were not particularized to Regency West's property.
We conclude that in that regard, Racine did not comply
with the directive of § 70.32(1) because it did not
use the "best information" that was available to its
assessor.
Id., ¶40. Regency W. can be fairly read to hold that mass
appraisal valuations are legally valid so long as the underlying
characteristics are appropriately particular to the property in
question. In Regency W., the assessor refused to use expense
data for the federally regulated subject property, relying
instead on expenses for market rate properties that did not
share the underlying characteristics. Id., ¶¶40, 46.
¶48 We therefore conclude that the City's assessment of
the Southgate Apartments complied with Wis. Stat. § 70.32(1).
The City permissibly utilized mass appraisal to value the
property and appropriately defended its initial assessment with
single property appraisals demonstrating that the mass appraisal
was not excessive.
IV
¶49 Metropolitan contends next that the circuit court
erred in concluding that Metropolitan failed to rebut the
presumption of correctness to which City assessments are
entitled. It asserts that we should reject the circuit court's
17
No. 2016AP21
findings regarding the reliability of the competing assessment
evidence and the weight and credibility the circuit court
attributed to that evidence. Metropolitan also argues that the
presumption of correctness should not have attached to the
City's assessment in the first instance.
¶50 Wisconsin Stat. § 70.49(2) provides that a tax
assessment being challenged pursuant to Wis. Stat. § 74.37 is
entitled to a presumption that it was "justly and equitably"
made, giving rise to a presumption of correctness.11 Bonstores
Realty One, 351 Wis. 2d 439, ¶¶5, 7; Adams Outdoor Advert., 294
Wis. 2d 441, ¶25. The presumption can be overcome if the
challenging party presents significant contrary evidence. See
Adams Outdoor Advert., 294 Wis. 2d 441, ¶25.
¶51 Metropolitan advances that it presented significant
contrary evidence sufficient to rebut the presumption of
correctness. At trial, both the City and Metropolitan presented
the testimony of their respective appraisers. The City, in
defending its initial mass appraisal, presented the testimony of
City assessor Peter Weissenfluh. Metropolitan presented the
testimony of its own appraiser, Lawrence Nicholson.
11
Wisconsin Stat. § 70.49(2) provides:
The value of all real and personal property entered
into the assessment roll to which such affidavit is
attached by the assessor shall, in all actions and
proceedings involving such values, be presumptive
evidence that all such properties have been justly and
equitably assessed in proper relationship to each
other.
18
No. 2016AP21
¶52 We turn first to the parties' respective tier 2 sales
comparison analyses. In defending the initial mass appraisal,
Weissenfluh conducted a tier 2 sales comparison analysis of the
Southgate Apartments. Nicholson likewise provided a tier 2
sales comparison analysis.
¶53 A sales comparison analysis involves "a comparison of
properties similar to the subject property and adjustment for
differences." Walgreen Co. v. City of Madison, 2008 WI 80, ¶22,
311 Wis. 2d 158, 752 N.W.2d 687 (internal citations omitted).
"The Manual explains that this approach incorporates 'the
principles of substitution,' that buyers will not pay more for
property than it would cost them to acquire substitute property
of equal desirability and utility." Id.
¶54 Under the sales comparison approach, the Manual
directs that a property's operating expenses, lease terms,
management quality or tenant mix "should be considered." 1
Wisconsin Property Assessment Manual at 7-21. The circuit court
observed that the City did not, and should have, adjusted for
economic characteristics in its sales comparison analysis.
However, the City mitigated this deficiency because the
valuations reached through the City's income approach supported
the valuations reached under the sales comparison approach.
¶55 Metropolitan, however, made adjustments to its own
appraisal based only on the properties' net operating income
without consideration of any other factors. In so doing, the
circuit court determined that Metropolitan "conflate[d] the
sales comparison and income approaches."
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No. 2016AP21
¶56 It is error to use the income approach "when the
market value is established by a fair sale of the property in
question or like property." Markarian, 45 Wis. 2d at 686. The
income approach should only be used when there is no data of
comparable property on which to base a sales comparison
analysis. Id.
¶57 Accordingly, the circuit court opined that, by relying
only on income, "Metropolitan [had] not presented reliable
contrary evidence to support its sales comparison valuations."
As a result, the circuit court found that "[t]he City's sales
comparison approach is more reliable than Metropolitan's
approach."
¶58 Next, we turn to the parties' tier 3 analyses. The
record reflects that Weissenfluh conducted a tier 3 income
analysis,12 as did Nicholson. Pursuant to a tier 3 income
analysis, a property's value is determined by reference to its
income generating potential. Walgreen Co., 311 Wis. 2d 158,
¶24. In applying the income approach, "the assessor must be
aware of what is happening in the market. All of the
information needed for the income approach is either obtained or
12
Weissenfluh performed an appraisal using the tier 3
income approach, even though under the Markarian framework it
was not required. See Walgreen Co. v. City of Madison, 2008 WI
80, ¶73, 311 Wis. 2d 158, 752 N.W.2d 687 (explaining that the
income approach is only favored over the sales comparison
approach if there is no available data of comparable
properties). He used this approach to validate the results of
his earlier sales comparison approach.
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verified by what the assessor finds in the marketplace." Id.
(citing Wisconsin Property Assessment Manual (2007) at 9-11).
¶59 As it did with the sales comparison approach, the
circuit court found that "[t]he City's income approach was more
reliable than Metropolitan's approach." Metropolitan's income
approach relied too heavily on Metropolitan's own expense ratio,
which is markedly higher than the expense ratios for similar
properties. Further, the specific expenses that were
responsible for the heightened expense ratio were largely
administrative and payroll expenses. The circuit court
determined that these expenses are "not tied to the property
itself."13
¶60 Conversely, the City accounted for the market trend
with regard to expense ratio, imputing a lower expense ratio to
Metropolitan that was more in line with the market. See 1
Wisconsin Property Assessment Manual at 9-12. As the circuit
court stated, "[t]he market trend is to maintain a lower expense
ratio, and the City's income approach accounted for this."
Because the City took the market into consideration and
Metropolitan did not, the circuit court found that "[t]he City's
income approach was more reliable than Metropolitan's approach."
13
Although we affirm on the basis that the circuit court's
fact finding was not clearly erroneous, we also observe that its
position finds support in the law: "[A]n assessor must have the
ability to discount, even disregard, factors that do not really
bear on the value of a property." Adams Outdoor Advert., Ltd.
v. City of Madison, 2006 WI 104, ¶53, 294 Wis. 2d 441, 717
N.W.2d 803.
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¶61 When the circuit court assessed the weight to be given
to the testimony of each witness, it determined that
Weissenfluh's appraisals were more reliable than Nicholson's.14
The weight to be given testimony is for the trier of fact.
Syvock v. State, 61 Wis. 2d 411, 414, 213 N.W.2d 11 (1973).
"When the trial court acts as the finder of fact, it is the
ultimate arbiter of the credibility of the witnesses and of the
weight to be given to each witness's testimony." Lessor v.
Wangelin, 221 Wis. 2d 659, 665, 586 N.W.2d 1 (Ct. App. 1998).
¶62 We will upset a finding of fact only if it is clearly
erroneous. Id. at 665-66. A finding of fact is clearly
erroneous if it is against the great weight and clear
preponderance of the evidence. State v. Arias, 2008 WI 84, ¶12,
311 Wis. 2d 358, 752 N.W.2d 748 (quoting State v. Sykes, 2005 WI
48, ¶21 n.7, 279 Wis. 2d 742, 695 N.W.2d 277 (quoting State v.
Tomlinson, 2002 WI 91, ¶36, 254 Wis. 2d 502, 648 N.W.2d 367)).
¶63 The circuit court's observation that the City's
approach was worthy of greater weight than Metropolitan's was
not clearly erroneous. It detailed the findings of each
assessor and noted what it determined to be deficiencies in
14
The dissent asserts that the circuit court's only two
findings of fact of import are (1) that the City's tier 2
analysis was missing an adjustment for economic characteristics,
and (2) that Metropolitan's tier 2 analysis erroneously adjusted
for net operating income. Dissent, ¶90. This formulation
disregards and fails to give effect to the circuit court's most
important finding: that the City's appraisals were "more
reliable" and therefore worthy of greater weight than
Metropolitan's.
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Nicholson's approach. The circuit court's findings were not
"against the great weight and clear preponderance of the
evidence." Rather, the findings supported the circuit court's
conclusion to uphold the City's assessment.
¶64 Metropolitan additionally argues that the presumption
of correctness should not have attached to the City's assessment
in the first instance. In support of this argument, it also
advances that, by presenting evidence of its tier 2 and 3
analyses, the City demonstrated that its own assessment was
incorrect.15 Because we have concluded above that the circuit
15
Specifically, Metropolitan contends that the City cannot
rely on a presumption of correctness because the only evidence
it presented (Weissenfluh's tier 2 and 3 analyses) indicated
that the initial appraisal was too low. Therefore, the tier 2
and 3 analyses undermine the correctness of the initial mass
appraisal and should not be considered.
This argument is premised on footnote 19 from Regency W.,
2016 WI 99, ¶57 n.19, 372 Wis. 2d 282, 888 N.W.2d 611. However,
footnote 19 does not compel this conclusion. Footnote 19
states:
We do not consider the appraisals of Peter Weissenfluh
and Dan Furdek because their appraisals exceeded the
valuations of Racine for both 2012 and 2013. See
Trailwood Ventures, LLC v. Vill. of Kronenwetter, 2009
WI App 18, ¶¶12-13, 315 Wis. 2d 791, 762 N.W.2d 841
(concluding that a taxation district that has accepted
the payment it requested has agreed that its taxation
value is the maximum value that it may seek; Wis.
Stat. § 74.37 permits a refund to the taxpayer or may
uphold the status quo, but there is no authority for
deficiency judgments).
Regency W. Apartments LLC v. City of Racine, 2016 WI 99, ¶57
n.19, 372 Wis. 2d 282, 888 N.W.2d 611.
(continued)
23
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court's findings of fact regarding the reliability of the
respective appraisals are not clearly erroneous and sufficiently
support the circuit court's determination, regardless of whether
the presumption was employed, we need not address whether the
presumption of correctness attached to the City's assessment
which was based on a mass appraisal.
¶65 In conclusion, we determine that the City's assessment
of the Southgate Apartments complied with Wis. Stat. § 70.32(1).
The City permissibly utilized mass appraisal for its initial
assessment and appropriately defended its initial assessment
with single property appraisals demonstrating that the
Although we do not address the question of whether the
presumption of correctness applies to the City's assessment
based on the initial mass appraisal, we nevertheless consider it
prudent to address this argument to provide guidance to the bar
on the application of footnote 19.
The court in Regency W. did not address the portions of the
Manual related to the use of mass appraisal as a means for
setting an initial assessment and single property appraisal to
defend initial assessments. Indeed, Regency West's property, as
explained above, did not lend itself well to mass appraisal.
See supra, ¶47.
Metropolitan's reading of footnote 19 conflicts with the
directive from Wis. Stat. § 70.32(1) that property be assessed
in accordance with the Manual. The Manual dictates that a mass
appraisal, if challenged, be defended with a single property
appraisal. To accept Metropolitan's interpretation of footnote
19 would mean that an assessor would be unable to defend an
assessment if the value he or she derived in a single property
appraisal exceeded the initial mass appraisal assessment. This
would lead to an absurd result. Ultimately, the question when a
taxpayer challenges an initial assessment is not whether the
initial assessment was incorrect, but whether it was excessive.
See Wis. Stat. § 74.37(1).
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assessment was not excessive. Further, we decline
Metropolitan's request to upset the circuit court's findings of
fact because we conclude that they are not clearly erroneous.
¶66 Accordingly, we affirm the decision of the court of
appeals.
By the Court.—The decision of the court of appeals is
affirmed.
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¶67 REBECCA GRASSL BRADLEY, J. and DANIEL KELLY,
J. (dissenting). The law requires that real property tax
assessments match as closely as possible the amount a buyer
would pay for the subject property in an arm's-length
transaction. Our statutes provide spare, but critical,
instructions on how municipalities must make that match. Most
significantly, they unmistakably require that an assessment
reflect the property's fair market value:
Real property shall be valued by the assessor in the
manner specified in the Wisconsin property assessment
manual provided under s. 73.03(2a) from actual view or
from the best information that the assessor can
practicably obtain, at the full value which could
ordinarily be obtained therefor at private sale.[1]
Wis. Stat. § 70.32(1) (emphasis added).2 This statute also
details the three types of analyses an appraiser may use in
arriving at that value:
In determining the value, the assessor shall consider
[1] recent arm's-length sales of the property to be
assessed if according to professionally acceptable
appraisal practices those sales conform to recent
arm's-length sales of reasonably comparable property;
[2] recent arm's-length sales of reasonably comparable
property; and [3] all factors that, according to
1
"Fair market value or full value of property is
consistently defined as: '[T]he amount it will sell for upon
arms-length negotiation in the open market, between an owner
willing but not obliged to sell, and a buyer willing but not
obliged to buy.'" Darcel, Inc. v. City of Manitowoc Bd. of
Review, 137 Wis. 2d 623, 628, 405 N.W.2d 344 (1987) (quoting
State ex rel. Mitchell Aero, Inc. v. Bd. of Review, 74
Wis. 2d 268, 277, 246 N.W.2d 521 (1976)).
2
All subsequent references to the Wisconsin Statutes are to
the 2013-14 version unless otherwise indicated.
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professionally acceptable appraisal practices, affect
the value of the property to be assessed.[3]
Id. A property's assessment normally enjoys a presumption of
correctness under Wis. Stat. § 70.49. The presumption, however,
attaches only if the appraiser used the proper valuation
techniques. See State ex rel. Markarian v. City of Cudahy, 45
Wis. 2d 683, 686, 173 N.W.2d 627 (1970) (stating that the
presumption of correctness "presuppose[s] the method of
evaluation is in accordance with the statutes"); see also
Regency W. Apartments LLC v. City of Racine, 2016 WI 99, ¶52,
372 Wis. 2d 282, 888 N.W.2d 611 ("Taxing authorities are
required to comply with the law when valuing properties, and
failing to do so negates the presumption of correctness that
Wis. Stat. § 70.49 otherwise accords.").
¶68 The assessment in this case was not based on any of
the three types of analyses listed in the statute. Instead, the
3
The third type of appraisal encompasses a number of
factors:
Within tier three, an assessor may consider "all
the factors collectively which have a bearing on value
of the property in order to determine its fair market
value." These factors include "cost, depreciation,
replacement value, income, industrial conditions,
location and occupancy, sales of like property, book
value, amount of insurance carried, value asserted in
a prospectus and appraisals produced by the owner."
The income approach, which seeks to capture the amount
of income the property will generate over its useful
life, and the cost approach, which seeks to measure
the cost to replace the property, both fit into this
analytic framework.
Adams Outdoor Advert., Ltd. v. City of Madison, 2006 WI 104,
¶35, 294 Wis. 2d 441, 717 N.W.2d 803 (citations omitted).
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City's assessor used a technique known as "mass appraisal" to
determine the taxes Metropolitan must pay. Thus, we must
determine whether our statutes allow appraisers to use the mass
appraisal technique, and whether the result produced by that
technique reflects the fair market value of Metropolitan's
property. As discussed below, this technique is not authorized
by statute, and it is structurally incapable of identifying the
fair market value of a specific property. Therefore, because
the assessed value under consideration was the product of the
mass appraisal technique, it is not entitled to the presumption
of correctness.
¶69 The majority opinion, however, not only erroneously
authorizes the mass appraisal technique, but also avoids
entirely the question of whether the presumption of correctness
attaches——an important task because the circuit court's decision
depended upon the presumption: "Metropolitan has not overcome
the presumption of the assessments' correctness and therefore
cannot prevail." We write separately to explain why the mass
appraisal technique is not authorized by Wis. Stat. § 70.32(1),
and why its use constitutes an error of law. We also analyze
whether the City's or Metropolitan's single-property sales
comparison assessments can be used as the basis to calculate
Metropolitan's tax liability. Based on the circuit court's
findings that both the City's and Metropolitan's sales
comparison appraisals are based on flawed information, we
conclude that neither single-property assessment complied with
the statute; therefore, this case should be reversed and
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remanded for the circuit court to remand to the Board of Review
to remand to the assessor with directions to perform a
statutorily-compliant sales comparison analysis to determine the
fair market value of Southgate using the best information
available.
I. MASS APPRAISALS
¶70 The majority says our law authorizes the mass
appraisal technique for two reasons. First, the Wisconsin
Property Assessment Manual (the "Manual") discusses the method,
and encourages its use. Second, it says mass appraisal is the
only practical means of assessing all the properties in
Milwaukee every year. Neither of these reasons finds support in
the laws of our State. In fact, they say the opposite.
A. The Manual's Authority
¶71 The majority should have paid more attention to
whether the mass appraisal technique is authorized by law. It
touched this question so lightly, however, that it missed the
legislatively-prescribed relationship between the statutes, the
Department of Revenue, and this court in developing and curating
the Manual's contents. As a consequence, this court found
authority for the mass appraisal technique where there was none.
¶72 The majority opinion assumes, sotto voce, that the
legislature entrusted the Manual's content entirely to the
Department of Revenue, and that whatever the Department puts in
the Manual comprises a proper method of appraisal. The majority
observed, and truly so, that "property must be assessed 'in the
manner specified in the Wisconsin property assessment manual.'"
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Majority op., ¶35 (quoting Wis. Stat. § 70.32). But the
observation is pregnant with this question: What techniques may
the Manual prescribe? If the majority had engaged that subject,
it would have found two substantive constraints on its content
that make the mass appraisal technique ineligible for inclusion.
¶73 The first constraint relates to the very purpose for
developing the Manual. The Manual is supposed to help an
assessor develop a statutorily-compliant appraisal. And the
sole purpose of that appraisal is to fulfill the directive that
"[r]eal property shall be valued . . . at the full value which
could ordinarily be obtained therefor at private sale." Wis.
Stat. § 70.32(1). Thus, when the statute directs the assessor
to appraise the property "in the manner specified in the
Wisconsin property assessment manual," it presupposes that the
Manual fixes its sights on the specific property's fair market
value. So we view the Manual's authority in light of its
ability to achieve that objective.
¶74 The legislature delegated responsibility to the
Department to develop the Manual, but the Manual exists only to
fulfill the statute's goal. If the Manual contains a technique
that does not produce the "full value which could ordinarily be
obtained therefor at private sale," then the technique lies
outside the legislative mandate. Without a legislative
pedigree, such a technique would necessarily lack authority.
This court has said so before. In Metropolitan Holding Co. v.
Board of Review, 173 Wis. 2d 626, 495 N.W.2d 314 (1993), this
court rejected one of the Manual's prescriptions for precisely
5
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this reason. The court concluded the Manual's direction would
not fulfill the statute's requirement that the appraisal
determine a property's fair market value: "In summary, we hold
that the assessment of [the property] violated sec. 70.32(1),
Stats. even though the assessment was pursuant to the
instructions set forth in the Wisconsin Property Assessment
Manual." Metropolitan Holding Co., 173 Wis. 2d at 633. That is
to say, the Manual's prescriptions are authoritative only to the
extent they assist in discovering a property's fair market
value.
¶75 The second constraint on the Manual is that it must
conform to our decisions, not vice-versa. That is not judicial
hubris, it is an explicit legislative requirement. The statute
authorizing the Manual's creation says it "shall be amended by
the department from time to time to reflect advances in the
science of assessment, court decisions concerning assessment
practices, costs, and statistical and other information
considered valuable to local assessors by the department." Wis.
Stat. § 73.03(2a) (emphasis added). Thus, if some part of the
Manual conflicts with our decisions, we are duty bound to ignore
it. See Allright Prop., Inc. v. City of Milwaukee, 2009 WI App
46, ¶10, 317 Wis. 2d 228, 767 N.W.2d 567. As we said in
Metropolitan Holding Company, the "Manual conform[s] to, rather
than establish[es], Wisconsin Law." Metropolitan Holding Co.,
173 Wis. 2d at 633.
¶76 It is within this context that we should consider
whether the assessor may rely on the mass appraisal technique to
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determine a property's fair market value. As relevant to this
case, an appraisal can lose its authoritative bona fides,
notwithstanding the Manual's blessing, in two ways. First, by
using an appraisal method that finds no warrant in the law. Or
second, by using a statutorily-compliant appraisal method that
nonetheless incorporates elements that prevent it from producing
the property's fair market value.
B. The Mass Appraisal Technique Cannot
Discover Fair Market Value
¶77 The mass appraisal technique did not identify the fair
market value of Metropolitan's property. And it did not because
it could not. We know this because the City said so. Well,
more than just said so——the City asseverated that the mass
appraisal technique does not even attempt to achieve the
statute's prime directive, to wit, discovering the fair market
value of the subject property:
At the outset, mass appraisal and single-property
appraisal are two different valuation techniques.
According to the WPAM,[] "Mass appraisal is the
systematic appraisal of groups of properties, as of a
given date, using standardized procedures and
statistical testing. In sharp contrast, single
property or "fee" appraisal is the valuation of one
particular property as of a given date."
(Emphasis added.)
¶78 "Sharp contrast," indeed. The statute requires the
assessor to identify the value of a specific property, whereas
the existential purpose of the mass appraisal technique is to
avoid that task. This technique values groups of properties
and, as the City admits, appraisers necessarily derive the value
of a group from trends and statistics, not individualized
7
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considerations: "Mass appraisal, unlike single property
appraisal, requires the development of a valuation model capable
of replicating the forces of supply and demand over a large
area." Buyers and sellers, of course, do not settle on a price
based on what the forces of supply and demand say about
properties not under contract. They consult the fair market
value of the specific property that is the subject of the
transaction. The mass appraisal technique is simply not
designed to discover that information. So if the assessed value
of Metropolitan's property were to match its fair market value,
it would be nothing more than a happy coincidence. The prospect
of a happy coincidence does not receive the presumption of
correctness.
¶79 This is the reason this court rejected the appraisal
in Metropolitan Holding Company. There, the City's assessor
used a capitalization of income approach to determine a
property's value. Metropolitan Holding Co., 173 Wis. 2d at 629.
But instead of using the property's actual income as the basis
of his calculations, he used a hypothetical income derived from
a market survey. Id. The resulting opinion of value,
therefore, could not describe the subject property's fair market
value; it could describe only the value of a chimeric property
comprising both real and fictional elements. Id. at 631-32.
This court said that was a violation of Wis. Stat. § 70.32(1)
because the opinion failed to reflect the fair market value of
the subject property. Id. at 632.
8
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¶80 The mass appraisal technique represents the extension
and formalization of the very error that caused us to reject the
appraisal in Metropolitan Holding Company. Whereas there the
appraiser valued a chimera (which was bad enough), the mass
appraisal technique here values an entirely fictional property
(which is worse). Thus, this methodology is statutorily
deficient because it is structurally incapable of determining
the fair market value of the specific property under
consideration.
C. Mass Appraisal Is Not an Authorized Technique
¶81 The mass appraisal technique is also deficient because
it is a valuation method that does not fit within the Markarian
trilogy. For good or for ill, we have developed a rigid three-
tier hierarchy of appraisal methodologies, and we require
assessors to comply with it punctiliously. See Adams Outdoor
Adver. Ltd. v. City of Madison, 2006 WI 104, ¶34, 294 Wis. 2d
441, 717 N.W.2d 803. The first tier, and the one we consider
the best evidence of fair market value, is a recent arm's-length
sale of the subject property.4 The second tier inquires into
recent arm's-length sales of properties comparable to the
subject property (while making adjustments for differences
4
"We conclude that an arms-length sale price is the best
indicator to determine fair market value for property tax
purposes." Darcel, Inc., 137 Wis. 2d at 624.
9
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capable of affecting a property's value).5 The third tier
includes techniques such as capitalization of income and
replacement cost.6 Id., ¶¶34-35.
¶82 The hierarchy is rigid because we believe that an
appraisal method's ability to accurately reflect a property's
fair market value decreases as one descends through the tiers.7
Consequently, if there is a sale of the subject property that
can be used in the tier-one valuation method, we have said it is
an error of law to use a different method: "We conclude that
the fair market value was established by this sale [of the
subject property] and that other evidence tending to show what
market value might be, which might be resorted to in the absence
of such a sale, may not be used here to overthrow the evidence
of the market itself." State ex rel. Evansville Mercantile
Ass'n v. City of Evansville, 1 Wis. 2d 40, 45, 82 N.W.2d 899
(1957); Darcel, Inc. v. City of Manitowoc Bd. of Review, 137
5
"The 'best information' of such value is a sale of the
property or if there has been no such sale then sales of
reasonably comparable property." State ex rel. Geipel v. City
of Milwaukee, 68 Wis. 2d 726, 733, 229 N.W.2d 585 (1975)
(citation omitted).
6
"The income approach, which seeks to capture the amount of
income the property will generate over its useful life, and the
cost approach, which seeks to measure the cost to replace the
property, both fit into this analytic framework." Adams Outdoor
Advert., Ltd., 294 Wis. 2d 441, ¶35 (citations omitted)
(referring to tier-three appraisals).
7
Whether that belief is warranted is a matter of some
debate. Wisconsin Stat. § 70.32(1) does not describe these
three categories as a hierarchy, but instead as a conjunctive
list of considerations for which an appraiser must account in
developing an opinion of value.
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Wis. 2d 623, 624, 405 N.W.2d 344 (1987) ("We conclude
that . . . an approach that considers factors extrinsic to the
arms-length sale [of the subject property] is not statutorily
correct and therefore in error as a matter of law.").
¶83 Likewise, if there are comparable sales sufficient to
conduct a tier-two analysis, it is an error of law to instead
use a tier-three methodology:
The "best information" of such value is a sale of the
property or if there has been no such sale then sales
of reasonably comparable property. In the absence of
such sales, the assessor may consider all the factors
collectively which have a bearing on value of the
property in order to determine its fair market value.
However, it is error to use this method when the
market value is established by a fair sale of the
property in question or like property.
State ex rel. Geipel v. City of Milwaukee, 68 Wis. 2d 726, 733,
229 N.W.2d 585, 588–89 (1975) (citation and internal marks
omitted); see also Adams Outdoor Advert., Ltd., 294 Wis. 2d 441,
¶37 ("If there were reasonably comparable sales, but the City
used the income approach, the assessments would be invalid.");
State ex rel. Hennessey v. City of Milwaukee, 241 Wis. 548, 553,
6 N.W.2d 718 (1942) ("When [fair market] value is established by
the sale of the instant and like property there is no occasion
to resort to reproduction value less depreciation as was here
done to determine that value."); State ex rel. Enter. Realty Co.
v. Swiderski, 269 Wis. 642, 645, 70 N.W.2d 34 (1955) (stating
that "facts [supporting tier-three analysis] only indicate what
the fair market value is and there is no occasion to resort to
them, and it is wrong to do so, when the market value is
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established by a fair sale of the property in question or like
property.").
¶84 And finally, we have consistently rejected valuation
methodologies that do not find a home in this three-tiered
hierarchy. See, e.g., State ex rel. Nw. Mut. Life Ins. Co. v.
Weiher, 177 Wis. 445, 448, 188 N.W. 598 (1922) (rejecting
valuation based on a property's "intrinsic value," rather than
its sale value); State ex rel. Markarian, 45 Wis. 2d 683
(rejecting valuation based on predicted post-development value,
rather than on comparable sales); State ex rel. Lincoln
Fireproof Warehouse Co. v. Bd. of Review, 60 Wis. 2d 84, 98, 208
N.W.2d 380 (1973) (rejecting valuation based on the property's
"intrinsic value.").
¶85 So now we must compare the mass appraisal technique to
our stable of authorized methodologies. At trial, the City
admitted this method does not belong in that stable. It is
neither fish nor fowl, as the saying goes, but a pastiche of
various methodologies:
Q So let me ask you this question. Did the mass
appraisal technique that was followed in 2008
contain a cost approach?
[City Assessor:] For this particular property?
Q Yes.
[City Assessor:] No.
Q Did it contain a comparable sales analysis?
[City Assessor:] Not in the strict form and the
methodology that I have done in this report or
that Mr. Tsoris had done for the board of review.
Q Did it follow the income approach?
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[City Assessor:] There were elements of the
income approach again with reference to the
market and sales. So I would say it's a
combination of information from the market
developed into a process that is systematic and
allowable for statistical testing.
¶86 Unless we abandon the Markarian trilogy, we must
necessarily conclude that the mass appraisal technique is not
lawful. It does not reflect a recent arm's-length sale of the
subject property, so it cannot be considered a tier-one method.
And although it apparently resembles the comparable sales method
(tier two), it does not follow its "strict form and
methodology." That must certainly be true, inasmuch as it
incorporates elements of a tier-three method (income
capitalization). And finally, it incorporates factors entirely
exogenous to the Markarian trilogy by relying on the value of
groups of properties determined through the use of "standardized
procedures and statistical testing."
¶87 The mass appraisal technique may be efficient, but
efficiency is not the standard by which we measure its
compliance with statutory requirements and our opinions. This
valuation method is not designed to discover the fair market
value of Metropolitan's property, and it operates entirely
outside the universe of previously approved appraisal
techniques. Today, the majority unwisely places this court's
imprimatur on the City's appraisal methodology by making the
Markarian trilogy a tetralogy. The new addition will not rest
comfortably with the others, because the mass appraisal
technique is not trying to accomplish the same objective as the
others.
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II. SALES COMPARISON EVALUATIONS
¶88 Having concluded that mass appraisal is not authorized
by statute and not entitled to the presumption of correctness,
we are left with determining whether either of the single-
property sales comparison assessments in the record satisfied
Wis. Stat. § 70.32(1).
¶89 "Failure to make an assessment on the statutory basis
is an error of law." Adams Outdoor Adver., Ltd., 294
Wis. 2d 441, ¶26. "Whether the City followed the statute in
making its assessment is a question of statutory interpretation
that we review de novo." Id. A circuit court's findings of
facts will not be overturned unless clearly erroneous.
Bonstores Realty One, LLC v. City of Wauwatosa, 2013 WI App 131,
¶6, 351 Wis. 2d 439, 839 N.W.2d 893.
¶90 There are two findings of fact of importance here:
(1) the circuit court found that the City's sales comparison was
erroneously missing an adjustment for economic characteristics;
and (2) the circuit court found Metropolitan's sales comparison
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erroneously adjusted for net operating income (NOI).8 These
findings, which are not clearly erroneous, make both the City's
and Metropolitan's sales comparison evaluations materially
deficient because neither complies with the requirements of a
proper sales comparison analysis.
¶91 Because no recent sale of Southgate exists, the proper
assessment must be based on the sale price of comparable
properties, with adjustments to reach a value the subject
property would likely fetch if it were sold. There is no
dispute that comparable properties exist; thus, the "tier two"
approach provides the best method to determine fair value.
¶92 The Manual defines comparable sales under the "Sales
Comparison Approach" as: "properties that are similar to the
subject property in age, condition, use, type of construction,
location, design, physical features and economic
8
The majority hangs its hat on a circuit court "finding"
that the City's appraisals were "more reliable" and claims the
circuit court gave more "weight" to the City assessor's
testimony. Majority op., ¶¶4-5, ¶61 & n.14. The circuit
court's reference to "more reliable" was not, however, a finding
of fact. Rather, it was a conclusion of law based on two
findings: (1) Metropolitan's assessor used NOI to make economic
adjustments to its sales comparison appraisal, and (2) even
though the City's sales comparison assessment failed to adjust
for economic characteristics, the City's tier-three assessment
supports its tier-two assessment. The circuit court's decision
never uses the term "weight" or discusses the "credibility" of
the assessor's testimony. Instead, the circuit court concludes
the City's sales comparison assessment complies with the statute
and Metropolitan's does not. The circuit court's legal
conclusion was wrong and mischaracterizing it as a credibility
determination does not redeem the error. Neither the City's nor
Metropolitan's sales comparison assessments comply with the
statute.
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characteristics." 1 Property Assessment Manual, ch. 7, at 7-20
(2009). The Manual then provides a list of six "Elements of
Comparison":
1. Real property rights conveyed
2. Financing terms
3. Time (market conditions)
4. Location
5. Physical characteristics (e.g. size, construction
quality, age, condition, features)
6. Economic characteristics (e.g. operating expenses,
lease terms, management, and tenant mix).
Manual at 7-21 (emphasis added). The City did not make any
adjustments for economic characteristics, claiming none were
necessary. Metropolitan's appraiser made adjustments for
economic characteristics, but based the adjustment on NOI
instead of "operating expenses, lease terms, management, and
tenant mix." Both resulted in evaluations contrary to the
statutory requirements.
¶93 With respect to the City's failure to adjust for
economic characteristics, the circuit court explicitly found
that "the City did not make specific adjustments for economic
characteristics" and "[i]t should have." Nevertheless, the
circuit court proceeded to choose the City's assessment as more
reliable because its tier-three income evaluation vouched for
the numbers in its sales comparison. But this court interpreted
the statutory language to mean we cannot use the income approach
unless no comparable sales exist, and everyone agrees that
comparable sales do exist. Adams Outdoor Adver., Ltd., 294
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Wis. 2d 441, ¶34 ("Only if there has been no arms-length sale
and there are no reasonably comparable sales may an assessor use
any of the third-tier assessment methodologies."). Using the
income approach to prop up the City's flawed sales comparison
approach improperly conflates the two approaches. The circuit
court's finding that the City "failed to but should have"
adjusted its sales comparison evaluation for economic
characteristics renders the City's sales comparison approach
violative of the statute. Therefore, the City's sales
comparison approach cannot be used.
¶94 Next, we consider whether Metropolitan's sales
comparison evaluation can be used. The circuit court found that
Metropolitan's sales comparison analysis does not comply with
the statute because although Metropolitan adjusted for economic
characteristics, it chose to adjust for NOI instead of the
factors the Manual identifies as part of the economic
characteristics adjustment: "operating expenses, lease terms,
management, and tenant mix." Manual at 7-21. Quoting from The
Appraisal of Real Estate 300 (13th Ed.), Metropolitan's
appraiser explained why he adjusted for NOI instead of making an
adjustment solely on the factors listed in the Manual: "Buyers
of income-producing properties usually concentrate on a
property's economic characteristics and put more emphasis on
conclusions of the Income Capitalization Approach." He further
explained that large apartment complexes are purchased "for
their income streams" and therefore considering "the
comparables' respective economics relative to the subject's" was
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important. Even if we agreed that NOI constitutes the best
adjustment factor in ascertaining true fair market value,
Wisconsin law does not list NOI as an element of comparison in
conducting the sales comparison approach. Thus, Metropolitan's
appraisal cannot be used in determining the correct assessment.9
9
It should not be a surprise that independent appraisers,
who rely on the Manual to determine fair value, produce reports
contrary to the statute because the Manual contains instructions
that conflict with the assessment statute. For example, the
Manual does not require the same strict three-tier progressive
Markarian hierarchy courts follow. Instead, the Manual
instructs that all methods for which information exists should
be conducted and then the final value of the property determined
by a "reconciliation" of all the methods. Manual, 7-18, 7-19
("The appraisal process consists of . . . developing preliminary
values based on the three approaches to value, then reconciling
the results to determine the most probable market value."; "The
appraiser should consider all three approaches when estimating
the value of a property."; "Reconciliation is the process by
which the appraiser evaluates and selects from the alternative
approaches to value."). The Manual also specifically instructs
that the income approach is most commonly used in determining
the value of commercial property, including apartment complexes
having more than four units, because this is the information a
buyer (or investor) most often uses to determine purchase price.
Manual, 7-20; 9-6 ("Appraisers typically use the income approach
for income-producing properties" because "buyers and sellers of
income-producing property may place the most reliance on the
income approach because it explicitly considers the net income
of the property."; "Buyers and sellers of commercial properties
usually base their transaction decisions on the property's net
operating income."). These principles may explain why the
income approach appears first in Metropolitan's appraiser's
report. Although this may accurately reflect how appraisers
normally arrive at an opinion of value, it does conflict with
the court's current understanding that the statute maintains a
rigid separation between the valuation methods, and requires a
hierarchical prioritization amongst them. So, as it currently
stands, the Manual's principles on this subject are at odds with
the court's requirement that assessors use the "tier two"
approach when comparable properties exist. When the Manual
conflicts with our interpretation of the statute, our
interpretation controls.
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¶95 With no statutorily-compliant assessment from either
party, this case should be remanded to the circuit court to
remand to the Board of Review to remand to the assessor with
directions to conduct a proper assessment under the sales
comparison approach with an adjustment for economic
characteristics using the best information available to
determine the fair market value of Southgate.
III. PRACTICALITY
¶96 A brief word on practicality. The majority says that
"[t]he arguments center on the meaning of 'best information that
the assessor can practicably obtain.'" Majority op., ¶26
(quoting Wis. Stat. § 70.32(1)). That is certainly where one of
the parties wanted to center the argument, and full marks to the
City for successfully getting this court to focus our attention
there. But this case has nothing to do with what information
"the assessor can practicably obtain." It is about what the
assessor does with the information indisputably available to
him.
¶97 All of the information necessary to perform a tier-two
valuation of Metropolitan's property was "practicably" available
to the City. We know this because the City brought just such a
valuation to trial (and Metropolitan willingly provided the
underlying data year after year). What the majority opinion
really means to say is not that the information for a tier-two
analysis is not practicably available to the assessor, but that
the time to do an authorized analysis is not practicably
available to him. That may certainly be true: He must assess
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every single property in the City of Milwaukee every single
year. That is, at the very least, a daunting prospect. But if
he does not have enough time to do that, he needs either more
staff or an amendment to the requirement that he make yearly
assessments.10 Neither of those needs, however, is capable of
changing the meaning of the statute.11
10
This is true, of course, only if the City wishes us to
presume its assessment is correct. The City has two available
options. It may either (a) receive the presumption of
correctness by performing a statutorily-compliant appraisal, or
(b) forego the presumption of correctness and perform a mass
appraisal. What it may not do is ask for the presumption of
correctness after performing an appraisal that does not comply
with the law.
11
In footnote 10, the majority objects to following the law
set forth in the statute because: (1) it would have to trust
data Metropolitan——a self-interested party——submitted; and (2)
the best information is available only because Metropolitan
challenged the mass appraisal, which forced the City to do the
calculation the statute requires. The first objection is so
sweeping that it calls into question a City's ability to ever
conduct a tier-two appraisal of a commercial property (because
it incorporates data in the hands only of the property owner),
or a tier-three capitalization of income appraisal (because
almost all of the information is solely in the owner's
possession). The possibility certainly exists that a taxpayer
may commit fraud by falsifying its income and costs, but that
possibility does not alleviate the City's responsibility to
follow the statute.
(continued)
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¶98 So, after today, our instruction to assessors will be
as follows. You must determine the fair market value from a
recent arm's-length sale of the subject property, if such a
transaction is available. If you do not, you err as a matter of
law. If such a sale is not available, you must base the
property's value on the sale of comparable properties. If you
do not, you err as a matter of law. If there are not enough
comparable sales to perform the analysis, then you must apply a
tier-three analysis, such as capitalization of income, or
replacement cost. If you do not, you err as a matter of law.
All of this we will require of you without fail. Unless, of
course, you don't have enough time. In that case, you can set
aside the Markarian hierarchy, ignore our opinions, forget the
statutory mandate to determine the fair market value of the
subject property, and do whatever the Manual tells you to do.
It seems odd that our entire jurisprudence on this subject
Moreover, the City chose to "trust" Metropolitan's actual
rents but not its actual costs. Instead, the City used data
from other apartment owners who voluntarily provide this
information in response to annual surveys the City conducts.
The same possibility of falsified data arises from the use of
this data. In fact, as indicated on several of the City's
exhibits, the City has to fabricate some of this data in order
to calculate the average "market" expense ratio: "City of
Milwaukee imputed 5% management fee to comparables #2, #3 and
#4" presumably because those properties did not report any costs
tied to management, and "City of Milwaukee appraiser imputed
reserves for replacements at 3% of EGI."
The majority's second objection is also not persuasive.
The City has not been forced to do anything by Metropolitan.
The statute and our opinions describe what comprises a compliant
appraisal, so if there has been any forcing, it was coming from
the legislature and the court, not Metropolitan.
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depends on whether the assessor has enough time, but there you
have it.
¶99 Having said all this, petitioners should be wary of
what they ask for. A successful challenge to the lawful basis
of an assessment does not mean that the case gets remanded for a
renewed contest over its excessiveness. It goes back for a new
assessment. State ex rel. Boostrom v. Bd. of Review, 42
Wis. 2d 149, 156, 166 N.W.2d 184 (1969). And that means the
petitioner will not enjoy the assurance that the assessment
cannot increase.
IV. CONCLUSION
¶100 Mass appraisal is not a statutorily-authorized
appraisal method because it is a creation of the Manual, not the
legislature, and it cannot produce "the full value which could
ordinarily be obtained therefor at private sale." Wis. Stat.
§ 70.32(1). It is not entitled to the benefit of the
presumption of correctness. Setting the mass appraisal aside,
we are left with the parties' single-property, sales comparison
appraisals. Neither complied with § 70.32(1). This case should
be reversed and remanded for the circuit court to remand to the
Board of Review to remand to the assessor with directions to
conduct a statutorily-compliant assessment based on the sales
comparison approach and properly adjusted for economic
characteristics using the best information available.
¶101 For these reasons, we respectfully dissent.
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