Opinion
Docket No. 017226-2009
12-21-2012
Odra Land Co., Inc. v. Monroe Twp.
Jerome J. Bruder, Esq. Bolster & Bruder Richard Rafanello, Esq. Shain, Schaffer & Rafanello
JUDGE
R.J. Hughes Justice Complex
NOT FOR PUBLICATION WITHOUT THE APPROVAL
OF THE TAX COURT COMMITTEE ON OPINIONS
Jerome J. Bruder, Esq.
Bolster & Bruder
Richard Rafanello, Esq.
Shain, Schaffer & Rafanello
Dear Mr. Bruder and Mr. Rafanello:
This letter constitutes my decision following trial in this matter. Plaintiff appealed the judgment of the Middlesex County Board of Taxation, which affirmed the original tax year 2009 assessment on property designated as Block 9, Lot 9.14 on the defendant Township's tax map. The original 2009 assessment, as affirmed by the Board was: Land: $384,200
Improvements: $30,900
Total: $415,100
The Chapter 123 ratio for Monroe Township for use in tax year 2009 is 44.88. The equalized value of the subject is, therefore, $924,911.
Much of the subject property consists of wetlands. The principle issue at trial was the extent to which the property could be developed. For the following reasons, I conclude that the judgment of the County Board must be affirmed.
According to the Township's records, the subject parcel is 63.56 acres. According to plaintiff's appraisal expert, the parcel is 63.04 acres, apparently taken from a survey provided to him by the plaintiff. The difference is not significant for purposes of this action. The subject property is located at the southeastern corner of Perrineville and Dey Grove Roads and it is irregularly shaped. It has approximately 1,600 feet of frontage on Perrineville Road, and approximately 1,525 feet of frontage on Dey Grove Road.
A single family ranch-style house of approximately 1,340 square feet has been constructed on the property. According to a survey of the property included in plaintiff's appraisal expert's report, the house is located about 160 feet from Perrineville Road and about 730 feet from Dey Grove Road. Access is via a gravel driveway from Perrineville Road. The house is fifty to sixty years old, with a newer addition about thirty years old. The house has a partial basement and an attached garage. There is also a detached garage or equipment shed (without doors). The appraisal experts agreed that the house is dated and had some deferred maintenance.
The house is located in a flood hazard control (FHC) district. No development is currently permitted in flood hazard control districts. The appraisal experts for both parties agreed that the house is considered to be a nonconforming pre-existing condition. Both experts also agreed that the entire southern half of the property was in the FHC district and had no further development potential.
Much of plaintiff's appraisal expert's testimony relied upon information regarding wetlands and soil conditions contained in a report written by Glenn Donohue of Earth Science Technology. Mr. Donohue is an environmental consultant with expertise in wetlands and environmental permitting. He had been retained by plaintiff to perform a preliminary freshwater wetlands assessment on the northern half of the subject property, and to make a preliminary determination as to the number of potential building lots that could be created in the northern half of the subject. Mr. Donohue testified that two upland areas on the subject property were potentially developable: one was at the northeast corner of the property off Dey Gove Road, and a second was in an area north of the existing residence not far from Perrineville Road. Notwithstanding that these areas both contained sufficient uplands to construct a residence, it was his opinion that neither of these two potential lots would support a septic system because of the high seasonal water table.
Using a wetlands location map prepared by Earth Science Technology for the northern half of the subject, plaintiff's appraisal expert estimated that 25.6 acres are in the Rural Residential/Farmland Preservation (RR-FLP) District, of which 87% or approximately 22 acres are located in freshwater wetlands or transition areas. The remaining 3.3 RR-FLP acres, according to the Earth Science Technology report relied upon by plaintiff's appraiser, consists of forested upland.
A report from Earth Science Technology dated January 26, 2010 was included in the appendix of the appraisal expert's report.
Construction of single family homes is permitted in the RR-FLP district. Other uses permitted in the RR-FLP district by the zoning ordinance are farms and other agricultural activities, parks, playgrounds and other recreational facilities, and municipal offices and buildings. The minimum lot area for a single family residence in the zone is six acres. Based on an exhibit included in the Earth Science Technology report, plaintiff's appraiser testified that all of the various types of soils present on the subject property are rated "very limited" for purposes of operating a sub-surface septic system and for purposes of constructing a home with a basement.
Plaintiff's expert testified that, based upon the wetlands and the soil conditions, he concluded that the subject had little or no development potential beyond the existing improvements. It was the opinion of plaintiff's appraisal expert that the highest and best use of the subject property was for subdivision of a six acre lot to support the existing residence, with the remainder of the subject property to be sold to a municipal, county or state entity for open space preservation. Although the northeast corner of the property off Dey Grove Road did contain some uplands, it was plaintiff's appraiser's opinion that it was financially unfeasible to develop that part of the subject. He testified that there would be a substantial cost to cut down trees to create a building envelope and for access to the building envelope from Dey Grove Road. He also testified that it would be expensive to construct a septic system conforming to current building codes because of the existing soil conditions. He apparently did not give any consideration to the second area close to Perrineville Road that had been identified by Mr. Donohue as potentially developable.
Plaintiff's appraiser used the sales comparison approach to value both the hypothetical six acre lot improved with the existing residence and the remainder of the parcel to be used as preserved open space. Plaintiff's appraiser first used three comparable sales to value the six acre improved parcel. Sale 1 took place on March 17, 2008, for a sale price of $250,000. The sale was of a two acre parcel in Monroe Township improved with a single family residence of 1,250 square feet with an attached two-car garage. Plaintiff's expert made a negative $25,000 adjustment for location, which he judged to be superior to the subject's location off of a busy road. He made a positive $60,000 adjustment for site size, at $15,000 per acre, and a -5% (-$12,000) adjustment for view, based on the subject's having no road exposure or view. He also made a +$10,000 adjustment for the subject's superior condition, and made various other adjustments, positive and negative for various amenities. As adjusted, plaintiff's appraiser's sale price for Sale 1 was $295,500.
Sale 2 was the June 20, 2008 sale of a single family home on 3.12 acres in Monroe Township for a sale price of $300,000. Plaintiff's appraiser made a positive $45,000 adjustment for site size, a -$10,000 adjustment for condition, negative adjustments totaling $45,000 for view and style of the house, a negative $10,000 adjustment for condition, and various positive and negative adjustments for amenities. As adjusted, the sale price was $310,000.
Sale 3 was the June 13, 2008 sale of a parcel of land in Monroe Township less than an acre in size (.829 acres), improved with a 1,400 square foot cape cod-style residence. The sale price was $226,000. Plaintiff's appraiser made a +$75,000 adjustment for size of the parcel, a negative $11,300 adjustment for view, a +$5,000 adjustment for condition, and adjustments for various amenities. As adjusted the sale price was $316,200.
Plaintiff's appraiser concluded that the value of a hypothetical subdivision of six acres, with the existing improvements was $300,000 as of the October 1, 2008 valuation date for tax year 2009.
Plaintiff's appraiser used three comparable land sales to value the subject's wetlands. Land Sale 1 was the January 9, 2003 sale of a 47.8 acre parcel located in Monroe Township. The sale price was $200,000 or $4,184 per acre. The zoning was partly R3A (rural agricultural) and partly FHC. According to plaintiff's appraiser's report, the property was approximately 94% freshwater wetlands. It was purchased by Middlesex County for open space preservation.
Plaintiff's appraisal expert made what his report called a nominal +3% per year adjustment for market conditions to each of the comparable sales. For Land Sale 1, the adjustment was +15% ($628 per acre). Plaintiff's appraiser's report stated that the residential real estate market increased during the period 2003 to 2006, and then leveled off in 2006, with a subsequent decline. That was the only adjustment made to Land Sale 1. As adjusted, the sale price was $4,812 per acre.
Land Sale 2 was the June 4, 2004 sale of 35.25 acres of land for a sale price of $100,000, or $2,837 per acre. Thirteen acres were located in Millstone Township and the remainder was located in Monroe Township. The zoning was partly FHC and partly RR-FLP. The sale was apparently between private parties. According to the appraiser's report, the thirteen acres in Millstone Township were encumbered by a conservation easement. Plaintiff's appraiser's only adjustment was for market conditions, which was +12% ($340 per acre). The adjusted sale price for Land Sale 2 was $3,177 per acre.
Land Sale 3 was the March 29, 2006 sale of a 3.03 acre parcel in South Brunswick Township for a sale price of $8,248 per acre. According to the appraiser's report, the property is entirely wetlands and is located in a RR (rural residential) zone. It was purchased by an adjacent land owner. Plaintiff's appraiser's only adjustment was for market conditions, in the amount of 6% ($495 per acre). The adjusted sale price for Land Sale 3 was $8,746.
The adjustment for market conditions was the only adjustment that plaintiff's appraiser made to the comparable land sales. It was his opinion that no adjustments were required for location, size, or frontage, since neither the subject nor the comparable sales had any development potential and none had any utility except for open space.
Plaintiff's appraiser gave Land Sale 1 (in Monroe Township), and Land Sale 2 (partly in Monroe Township) the most weight. He concluded that the value of the remaining acreage of the subject was $5,000 per acre, ore $285,000 (58.04 acres x $5,000). Together with the value of the existing improvements on a hypothetical six acre lot ($300,000), it was his opinion that the value of the subject property as of October 1, 2008 was $585,000.
It was defendant's appraiser's opinion that the highest and best use of the subject property was for preservation of the vacant land that contains a high proportion of wetlands, continued use of the existing single family dwelling, and development of a residential building lot in the uplands portion of the subject north of the existing residence, off Perrineville Road and within the RR-FLP zone. In other words, her opinion as to highest and best use was substantially the same as plaintiff's expert, except for the development of a residential building lot. The area identified by defendant's expert was one of the two areas that had been identified by Mr. Donohue. Defendant's appraisal expert testified that Mr. Donohue's report was not available to her at the time she prepared her report, or she would have given greater consideration to the second area identified by him, off Dey Grove Road.
Defendant's appraiser used the comparable sales approach to valuation, selecting comparable sales for the undevelopable wetlands, another set of comparable sales for the potential building lot, and a third set of comparable sales for the existing residence.
Defendant's expert utilized five comparable sales for the wetlands. Land Sale 1 was the March 23, 2006 sale of 7.73 acres in South Brunswick Township for a sale price of $75,000 or $9,700 per acre. According to her report, she verified this sale by reviewing the deed and with the assessor's office. According to the appraiser, the parcel contains 75-80% wetlands. The purchaser was a non-contiguous neighbor who purchased it for farming purposes. Defendant's expert made an adjustment for conditions of sale of -10% (-$970 per acre) for what plaintiff's appraiser characterized as a premium price paid by the purchaser, and a -10% adjustment for parcel size, based upon the principle that larger parcels generally sell at a lower price per acre than smaller parcels. As adjusted, the sale price was $7,857.
Defendant's expert's Land Sale 2 was the March 29, 2006 sale of a 3.031 acre parcel in South Brunswick Township for a sale price of $25,000, or $8248 per acre. This sale was also used by plaintiff's appraiser as his Land Sale 3. As mentioned also by plaintiff's expert, the property was purchased by an adjacent land owner. According to defendant's expert's report, the purchaser wanted better access to the adjacent property. Defendant's expert adjusted Land Sale 2 by -10% for conditions of sale due to what she characterized as a premium paid by the purchaser. She also made a -10% adjustment for parcel size. As adjusted, the sale price was $6,681 per acre.
Defendant's expert's Land Sale 3 was the January 9, 2003 sale of 47.8 acres in Monroe Township to Middlesex County for purposes of open space conservation, and is the same sale as plaintiff's expert's Land Sale 1. The sale price was $200,000, or $4,184 per acre. Defendant's appraisal expert made an adjustment for market conditions of +15% ($912 per acre). According to her report, she calculated the adjustment for market conditions at the rate of +3% per year through 2006, which would indicate that the appropriate adjustment should have been 9% rather than 15%. As adjusted, the sale price was $4,812.
Land Sale 4 was the was the April 15, 2003 sale of 68.3 acres adjacent to Cheesequake State Park in Old Bridge Township, for a sale price of $450,000, or $6,589 per acre. The purchaser was the State of New Jersey, Department of Environmental Protection. According to defendant's appraiser, the parcel was purchased for expansion of the park and to protect environmentally sensitive areas from future development. She made a single adjustment of +15% for market conditions (again, this appears to be a calculation error). As adjusted, the sale price was $7,577 per acre.
Land Sale 5 was the June 4, 2003 sale of 14.9 acres in East Windsor Township for a sale price of $90,000, or $6,081 per acre. The purchaser was Mercer County and the purchase was intended for open space preservation. According to defendant's appraiser, the parcel is "impacted" by freshwater wetlands. She made a +15% adjustment for market conditions and a -5% for parcel size. As adjusted, the sale price was $6,644 per acre.
According to defendant's expert, the mean sales price of the wetland land sales was $6,714 per acre as adjusted, and the median was $6,681 per acre. She concluded that the value of the nondevelopable wetlands was $6,700 per acre. Based on 54.5 acres, the value of the subject's wetlands as of the valuation date, October 1, 2008 was $365,150.
Defendant's expert next valued the subject's potential building lot, which she hypothesized would contain six acres, consistent with the RR-FLP zoning. She used six comparable sales. Lot Sale 1 was actually three sales, all in Monroe Township. A larger lot had been subdivided into three lots, each of which was separately sold for $400,000. The first sale, a 21.09 acre parcel, was sold on August 7, 2007. The second sale, of 17.56 acres, and the third sale, of 10.99 acres, were both sold on June 29, 2007. According to defendant's appraiser, based on the soil classification, a high proportion of these parcels contains wetlands, but each lot has an ample building envelope along the road frontage. The zoning was RR-FLP, requiring a minimum lot size of six acres, like the subject.
Rather than adjusting each of these lots individually, defendant's expert made her adjustments based on the sale of a single lot of 16.5 acres (apparently an average of the size of the three lots). According to defendant's expert, land prices moved upward until mid-2006, when the market slowed; the market decreased sharply since 2007-08. These conditions, together with a decrease in the availability of financing, required moderate negative adjustments, according to the appraiser. She made negative 10% adjustments to each of the lot sales. She also made a -20% adjustment for Lot Sale 1"s superior location on a rural side street, which she regarded as superior to the subject's location on Perrineville Road, a busy local road. Finally, she made a -10% adjustment for the size of the lot(s), based on the principle that larger lots will generally sell for less per acre than smaller lots, and upon the six-acre size of the hypothetical lot to be developed on the subject. As adjusted, Lot Sale 1 had a sale price of $252,000.
Lot Sale 2 was the August 27, 2007 sale of .83 acres in Monroe Township for a sale price of $213,200. According to defendant's appraiser, the lot is a flag lot, adjacent to a newer major subdivision. According to the adjustment grid in her report, the property has no wetlands. The zoning is R-1, with a minimum lot size of one acre. She made adjustments of -10% for market conditions, +50% for the size of the lot, -20% for zoning, and -10% because public water and sewer were available to that lot. As adjusted, her sale price for Lot Sale 2 was $230,000.
Defendant's expert's Lot Sale 3 was the November 30, 2006 sale of a three acre lot located near established residential neighborhoods in Monroe Township for a sale price of $279,900. In addition to the -10% adjustment for market conditions, she made a +20% adjustment for lot size, and a minus 20% for zoning (R-1, one-acre minimum). As adjusted the sale price of Lot Sale 3 was $251,910.
Lot Sale 4 was the February 28, 2007 sale of a .73 acre lot in Old Bridge Township for a sale price of $225,000. The property was located in the R-40 single family residential zone (two-acre minimum lot size where private septic is required). According to defendant's appraiser, a variance has been obtained to construct a single family dwelling. She made adjustments of - 10% for market conditions, -50% for lot size, -20% for zoning and -5% for the availability of public water. As adjusted, the sale price was $253,125.
Lot Sale 5 was the March 6, 2008 sale of a 9.5 acre lot in Manalapan for a sale price of $255,000. Defendant's appraiser made adjustments of -10% for market conditions, -10% for its superior location on a rural side street, and -10% for lot size. As adjusted, the sale price was $183,600.
Lot Sale 6 was the April 9, 2007 sale of 12.72 acres in Manalapan for a sale price of $400,000. According to defendant's appraiser's report, the sale was part of a newly established five lot subdivision. Further, based on the soils located at the site, defendant's appraiser is of the opinion that a high proportion of the parcel contains wetlands. She made adjustments of -10% for market conditions, -20% for location, and -10% for site size. As adjusted, the sale price was $252,000.
Defendant's appraiser indicated that the mean lot price, as adjusted was 237,149, and that the median price was $240,000. She concluded that the value of the hypothetical six acre lot to be developed at the subject was $240,000, as of the October 1, 2008 valuation date.
Finally, defendant's expert selected five comparable sales to value the existing residence and related improvements. She hypothesized that a three acre lot would be carved out and approved for the existing improvements. According to her testimony, she selected this lot size because her comparables were predominantly that size and that a three acre lot carved out of the subject for the existing improvements would require fewer adjustments. All of her comparable sales were located in Monroe Township.
House Sale 1 was the June 13, 2008 sale of an older cape cod style residence located on a .83 acre parcel in Monroe Township. The sale price was $226,000. According to defendant's appraiser, the house needed major systems replacement and other renovations. She made an adjustments of: -6% for market conditions; a positive adjustment of $31,200 for the subject's superior condition, based on $25-$35 per square foot; a positive adjustment for the subject's superior size of $3,680, based on $30-$40 per square foot; a positive adjustment of $15,000, based on the subject's superior number of bathrooms (three) as compared with the sale (one); a positive adjustment of $25,000 for the subject's superior amenities (garages); and a positive $40,000 for the subject's superior land to building ratio. Gross adjustments were 57%. As adjusted, the sale price was $327,320.
House Sale 2 was the March 17, 2008 sale of an older cape cod residence in very poor condition on a 2.0 acre lot. The sale price was $250,000. According to defendant's appraiser, the buyer gutted and completely renovated the house following the sale. She made various adjustments for market conditions, location, condition, size, number of bathrooms, lack of garage, and land to building ratio. Gross adjustments were 62%. As adjusted, the sale price was $334,335.
House Sale 3 was the June 20, 2008 sale of an older ranch-style house on a 3.12 acre lot. The sale price was $300,000. According to defendant's appraiser, the house had been well-maintained. She made adjustments for size of the improvement, number of bathrooms, the lack of garages, the availability of public water, and the land building ratio. Gross adjustments were 24%. The adjusted sale price was $333,280.
House Sale 4 was the September 8, 2008 sale of a .95 acre parcel with an older Cape Cod-style home with a finished and expanded attic. According to defendant's appraiser, the house had been converted to two apartments, but could be converted back to a single-family dwelling. It had a new heating system and roof. Defendant's appraiser made adjustments for location,size of the improvement, number of bathrooms, the subject's superior number of garages, the availability of public water at the sale property, and the land building ratio. Gross adjustments totaled 26%. The adjusted sale price was $328,650.
House Sale 5 was the July 3, 2008 sale of a older ranch style home on a 1.05-acre lot for a sale price of $335,000. Defendant's appraiser's report indicated that the house had a remodeled kitchen, and that there was an in-ground pool. She made adjustments for location, condition, size of the improvement, number of bathrooms, number of garages, the availability of public water at the sale property, and the land building ratio. The gross adjustments were 33%. The adjusted sale price was $332,690.
Defendant's appraiser reported that the range of the adjusted sales prices was $327,320 to $334,335, their mean value was $331,255, and their median value was $332,690. She concluded that the value of the existing improvements on a three-acre lot was $330,000.
Defendant's appraiser concluded that the total value of the subject was $935,000 as of the October 1, 2008 valuation date for tax year 2009, arrived at as follows: Wetlands (54.5 acres): $365,000
Potential Lot (6 acres): $240,000
Existing House (3 acres): $330,000
Total: $935,000
"Original assessments and judgments of county boards of taxation are entitled to a presumption of validity." MSGW Real Estate Fund, LLC v. Borough of Mountain Lakes, 18 N.J. Tax 364, 373 (Tax 1998). It is presumed that the assessment is correct and the appealing taxpayer has the burden of proving that it is incorrect. Pantesote Co v. City of Passaic, 100 N.J. 408, 413 (1985). The evidence required to overcome the presumption must be definite, positive and certain in quality and quantity. Ibid. The presumption of correctness remains in the case until the appealing taxpayer produces sufficient competent evidence that the assessment is incorrect. Little Egg Harbor Tp. v. Bonsangue, 316 N.J. Super. 271, 285 (App.Div. 1998)
In MSGW Real Estate Fund, supra, 18 N.J. Tax at 376-80, Judge Kuskin reviewed how the presumption of correctness functions in an appeal of a property tax assessment. Where, as here, there is no R. 4:37-2(b) motion to dismiss at the close of plaintiff's case, the court must first determine whether the presumption has been overcome before it begins weighing and analyzing the evidence. The court "views the evidence as if a motion for judgment at the close of all the evidence had been made pursuant to R. 4:40-1 (whether or not the defendant or the plaintiff actually so moves), employing the evidentiary standard applicable to such a motion." MSGW Real Estate Fund, supra, 18 N.J. Tax at 377. Essentially, that standard requires the trial judge to accept as true all of the evidence of the appealing taxpayer and to give the taxpayer the benefit of all inferences which can reasonably and legitimately be drawn from that evidence. "The point is that the judicial function here is quite a mechanical one. The trial court is not concerned with the worth, nature or extent (beyond a scintilla) of the evidence, but only with its existence, viewed most favorably to the party opposing the motion." Id. at 378-79, quoting Dolson v. Anastasia, 55 N.J. 2, 5-6 (1969).
Even after having determined that the plaintiff or defendant has overcome the presumption, the court may conclude that no adjustment to the assessment is warranted, in which event judgment should be entered affirming the assessment. Such a denial of relief is not inconsistent with a determination that the presumption of validity has been overcome. Evidence which is sufficient for a party to overcome the presumption when considered using the artificial standard, or "rose-colored glasses," required under R. 4:37-2(b) or R. 4:40-1, is not[MSGW Real Estate Fund, supra, 18 N.J. Tax at 379 (citations omitted)].
necessarily sufficient to carry that party's burden of proof when all the evidence is subjected to critical analysis and weighing by the court.
In this case, I conclude that, when viewed by the required standard, plaintiff has produced sufficient evidence to overcome the presumption of the correctness of the assessment. However, after considering and weighing the evidence produced by both parties, I also conclude that plaintiff failed to meet its burden of proof. I also reject the suggestion of defendant's counsel in his closing argument that the court should consider that the subject had two potential lots as identified by Mr. Donohue, and that the assessment should be increased. Defendant, too, failed to carry its burden of proof on this issue.
I consider first the issue of the highest and best use of the subject property, since the value conclusions of both appraisers ultimately rest on their respective opinions of highest and best use. I conclude that neither opinion was persuasive or well-supported.
Highest and best use has been defined as "the use that at the time of appraisal is the most profitable, likely use or alternatively, the available use and program of future utilization that produces the highest present value." Ford Motor Co. v. Township of Edison, 127 N.J. 290 (1992) (internal quotation marks and citations omitted). See also General Motors v. Linden City, 22 N.J. 95, 107 (Tax 2005) ("the reasonable and probable use that supports the highest present value, as defined, as of the date of the appraisal")(internal quotation marks and citations omitted); Penns Grove Gardens Ltd. v. Penns Grove Borough, 18 N.J. Tax 253, 258 (Tax 1999) (highest and best use can be defined as "'the reasonably probable and legal use of vacant land or an improved property, which is physically possible, appropriately supported, financially feasible and that results in the highest value'")(citation omitted).
As pointed out by our Supreme Court in Ford Motor Co., supra, 127 N.J. at 301:
A concomitant of a highest and best use, however, is that consideration of the use has as a prerequisite a probability of achievement. "The projected use cannot be remote, speculative or conjectural." Thus, in many, if not most, instances the property owner points to the somewhat shabby current use of the property as indication of value, and the taxing authority points to available uses and programs of future use that can produce higher values.
[(citations omitted)].
Plaintiff's appraisal expert opined that development of a building lot for residential construction was not financially feasible. He pointed to two difficulties: the cost of cutting down a substantial number of trees at the site off Dey Grove Road; and the cost of constructing a raised-mound septic system (a type of above-ground septic system), even if such a system was approved for the subject, which he doubted. Mr. Donohue, the wetlands consultant, also expressed doubt as to whether a raised-mound septic system could be constructed at either site that he had identified due to the high water table. He refused to rule it out entirely, however, because he conceded that the soil borings that he had taken at the site were only preliminary studies, and that additional studies would have to be performed before it could be determined with any certainty as to whether a septic system could be constructed at the upland sites he identified.
Neither plaintiff's appraisal expert nor Mr. Donohue testified as to any of the costs of developing a residential building lot at the subject property. When questioned about the potential costs, plaintiff's expert could not even estimate with any certainty the costs of cutting down the trees at the subject to create a building envelope and to provide access to that envelope. No one provided estimates of the costs of testing to determine whether a septic system could be constructed or the costs of a raised-mound septic system, or of any of the other costs of developing a residential building lot in an area affected by wetlands. The appraiser apparently did not undertake any marketing studies to determine whether there was a market for a home at a selling price that would reflect the cost of the work that he suggested would have to be done. See, e.g., Appraisal Institute, The Appraisal of Real Estate 284 (13 ed. 2008):
Successful application of the financial feasibility test to land as though vacant relies on interpretation of relevant and credible market evidence collected and analyzed in the market area and in the subject property's competitive market. Risk is an important consideration and must be weighed along with other feasibility factors.
I recognize that there are practical limits to what can be expected of appraisers by way of documentation to support an opinion of value in the context of an appeal of a property tax assessment. In Glen Wall Associates v. Wall Township, 99 N.J. 265 (1985), the Supreme Court noted: "[a]n expert should be expected to support his opinion with as much documentation as necessary, but within realistic and practical limits. Courts should always be mindful of the time and money both taxpayers and municipalities must spend litigating these actions." Id. at 277. While plaintiff and its appraisal expert certainly cannot be expected to proceed as though they were actually undertaking development of the subject by obtaining the necessary testing and engineering work, reliable estimates of the costs that the appraiser deemed prohibitive, together with some evidence of whether there was or was not a market for a home at a price that would have justified those costs, could have provided some support for his opinion that development of a residential lot was not financially feasible.
There was, in fact, some evidence that there is at least some market for a single family high-end residence with a raised-mound septic system in the immediate area of the subject. The subject had previously been subdivided to create a building lot, Lot 9.16, with access to Dey Grove Road and adjacent to the uplands at the northeast corner of the subject, one of the two sites identified by Mr. Donohue, and the only site discussed by plaintiff's appraiser as a potential location for a building lot. There was testimony by one of plaintiff's principals that the subdivided lot had been transferred to her daughter for the recent construction of a large residence that required a raised-mound septic system.
In sum, I find that there was no support for plaintiff's appraiser's opinion that there was no possible development of the subject property that was financially feasible. I therefore conclude that his conclusion as to the highest and best use was a net opinion. Consequently, his opinion of the subject's value, which is dependent upon the highest and best use of the property, is not persuasive.
Defendant's appraiser's conclusion that the highest and best use of the subject included development of a residential building lot was also not supported. She identified the uplands area north of the existing improvements not far from Perrineville Road as an uplands area with development possibilities. She pointed out that the soil classification in that area was "somewhat limited" rather than "very limited" as plaintiff's appraiser had indicated in his report and testimony, and that Lot 9.16, upon which there had been recent residential construction also had "somewhat limited" soils. When asked on cross-examination about access to the potential lot, she testified that it shouldn't be a problem because environmental regulations permitted some crossing over of wetlands in order to access uplands. When asked about a potential route, however, she testified that it was not her job to site a potential building lot. Rather, that was the function of an engineer. Mr. Donohue testified that there was a 100 foot limit to wetlands that could be used for access and that, according to the scale of the map, it would be "very close" as to whether defendant's appraiser's proposed lot could gain access to Perrineville Road or to Dey Grove Road.
Ultimately, defendant's appraiser was unwilling to opine that development of a residential building lot was reasonably probable. The best she could do was state that such development was "reasonable possible." Her examination of financial feasibility was limited to the statement contained in her report to the effect that demand for residential housing in the area had been healthy and that long term prospects were that such demand would continue.
From the foregoing, I conclude that neither appraiser had sufficient information to opine that, as of the valuation date, development of a residential building lot was either reasonably probable or not reasonably probable. I find that there is some possibility of future development. Placing a value on that possibility is problematic. One approach might have been to make appropriate adjustments to sales of residential building lots that would account for the risk that a lot could not be developed at the subject.
Defendant's appraiser's testimony and report provided the only evidence of sales of comparable building lots. The difficulty with relying on that data, however, is that she performed very little verification of those sales. Her report notes that none of the lots had approvals, and consequently she made no adjustments to account for the cost of obtaining approvals or to account for the risk that approvals to construct could not be obtained. The sales were, however, individual building lots, all with road access, as compared with the one lot at the subject that she identified as having building potential. That element of risk, the possibility of lack of access, was not accounted for in defendant's appraiser's valuation of a potential building lot at the subject. Moreover, according to her report, she verified all of the lot sales only by reviewing the deeds, and with the assessor's office. There was no evidence that she had spoken with any of the participants involved with these lot sales, and it is unknown whether there had been any testing or any other determination that a septic system could be constructed at those sites. All of them required a private septic system. While defendant's appraiser regarded the sales as comparable to the subject in terms of risk, she had insufficient information to make that assumption. I note in passing that defendant's appraiser's gross adjustments to those lots were extremely high: 40% for Lot Sale 1; 90% for Lot Sale 2; 50% for Lot Sale 3; 85% for Lot Sale 4; 30% for Lot Sale 5; and 40% for Lot Sale 6. See, e.g.,
M. I. Holdings, Inc. v. Jersey City, 12 N.J. Tax 129, 137 (Tax 1991) (gross adjustments of 42% and 63% are of a magnitude that vitiates comparability). The comparable lot sales are neither reliable nor probative evidence of the value of the subject. There is insufficient evidence for me to attempt to value any potential for the development of a building lot at the subject.
I also find that the evidence of the value of the wetlands was not reliable. Plaintiff's appraiser employed three comparable sales of wetlands and defendant's appraiser employed five. Two of those sales were used by both appraisers.
Of the six sales considered, only three were purchased for the purpose of wetland conservation and preservation, the highest and best use opined to by both appraisers: plaintiff's appraiser's land sale 1, which was also defendant's appraiser's land sale 3, and defendant's land sales 4 and 5. "'Any difference in the current use or the highest and best use of a potential comparable sale and the subject property must be addressed. The appraiser must recognize the difference and determine if the sale is an appropriate comparable and, if so, whether an adjustment is required.'" Pepperidge Tree Realty Corp. v. Kinnelon Borough, 21 N.J. Tax 57, 64 (Tax 2003), quoting Appraisal Institute, The Appraisal of Real Estate, 436-37 (12th ed. 2001). Neither appraiser addressed that issue here.
Plaintiff's appraiser made adjustments for time or market conditions to his three comparable wetlands sales of 15%, 12% and 6% respectively. Defendant's appraiser made adjustments for market conditions of 15% to her wetlands sales 3, 4, and 5. Neither appraiser provided any market data to support their respective adjustments. The testimony and reports of both were limited to generalized statements about rising and declining markets. No information was provided as to how either arrived at their respective percentage per year adjustments.
One of plaintiff's expert's sales, Land Sale 3 (3.03 acres), and three of defendant's expert's land sales, Land Sales 1 (7.73 acres), 2 (the same as plaintiff's expert's sale 3) and 5 (14.80), were so much smaller than the subject's wetlands (57.04 acres, without subtraction of a potential lot) as to vitiate comparability.
The only wetland sales that had any real comparability, that is, they were sold for land preservation or conservation purposes and were of a comparable size, were plaintiff's expert's sale 1 (also defendant's expert's sale 3) and defendant's expert's sale 4. Both of those sales, however, dated to 2003, more than five years before the valuation date. Because the adjustments for time or market conditions were not supported by market data, those two sales are also not probative or reliable evidence of the value of the subject.
Both experts' valuation of the subject's existing residential improvements suffered from the same types of defects as noted in Greenblatt v. Englewood City, 26 N.J. Tax 41, 54-55 (Tax 2011). Plaintiff's expert made adjustments to his comparable residential sales for factors such as location, site size, view, condition, basement, and other amenities. Defendant's expert made similar adjustments and also made adjustments for market conditions. Neither provided any market data to support any of their adjustments. "Without an explanation of the methodology and assumptions used in arriving at the experts' adjustments, the court is constrained to place 'little weight' on the expert's opinion."
As noted in Greenblatt, supra, id. at 54 (quoting Dworman v. Tinton Falls, 1 N.J. Tax 445, 458 (Tax 1980): "'[T]he opinion of an expert depends upon the facts and reasoning which form the basis of the opinion. Without explanation as to the basis, the opinion of the expert is entitled to little weight in this regard . . . . Mere naked assertions as to dollar amount adjustments do not carry the day." Greenblatt, supra, 26 N.J. Tax at 55.
"When the court rejects the ultimate conclusions as to true value proffered by the parties' experts, it should make an independent determination of true value on the basis of those portions of the experts' testimony which the court finds credible." Pennwalt Corp. v. Twp. of Holmdel, 4 N.J. Tax 51, 55-56 (Tax 1982)(emphasis added). For the reasons set forth above, there is insufficient credible evidence for me to make an independent determination of true value. Consequently the assessment is affirmed. The Clerk of the Tax Court will be directed to enter judgment consistent with the foregoing.
Very truly yours,
Gail L. Menyuk, J.T.C.