Blog / 11.28.2016

Ohio Supreme Court Upholds Broad Discretion of BTA in the Valuation of Real Property

On October 27, 2016, the Ohio Supreme Court (the court) issued its decision in Columbus City Schools Bd. of Edn. v. Franklin Cty. Bd. of Revision, Slip Opinion no. 2016-Ohio-7466, which stemmed from an appeal of a Board of Tax Appeal (BTA), no. 2011-3590. The court’s decision involved real property valuation case and concerns the proper valuation of a 240-unit apartment complex in Northeast Franklin County for tax year 2005.

The property at the center of this case was originally valued at $13,600,000 and the property owner sought a reduction in the valuation t $9,720,000. The Board of Revision (BoR) ultimately adopted (in a 2-1 vote) a valuation of $9,338,000 proposed by an MAI certified appraise. The BTA affirmed the BoR decision.

The board of education (BoE) appealed arguing that the absence of market data and other flaws in the appraisal made it unreasonable and unlawful for the BoR and BTA to accept the appraisal.
There are 3 approaches used in appraising property—income, cost and sales comparisons. For an income producing property, the income stream is critical for determining its value. When a property is new, the cost basis of the property may make more sense. Because the variables affecting each property, such as unit size, floor plans, amenities, access to transportation, etc. differ so much from one property to the next, sale comps may have limited utility.

The appraiser in this case relied primarily (but not exclusively) on the income stream produced by the property. It was a newly constructed property so the appraiser averaged the 2004 and 2005 numbers since the property was leased up by 2005. He reasoned that an arm’s length purchase price would typically be based upon the income stream and therefore a more accurate valuation should rely on the income approach. The appraiser also looked at 10 sales comparisons, taking into consideration the range of cap rates an price per unit to serve as a check on his estimated value and to determine the best cap rate to use in his income valuation.

The BoE objected and the case advanced to the court where the BoE advanced the following proposition of law: “An appraisal that fails to include relevant market data and the specific adjustments made thereto is inherently unreliable and cannot be used to determine the true value of real property for tax purposes.” It argued that the BTA erred is relying on the appraisal because the report did not include sufficient data under its market and income approaches and further did not include a cost approach, all of which was unlawful. It should be noted that additional data was provided by the appraiser in testimony.

When tax appeals come before the court, it is often held that when the court reviews the BTA’s disposition of the factual issues in a property valuation case, the court “does not sit either as a super BTA or as a trier of fact de novo.” The BTA is given wide discretion in determining the weight to give evidence and the credibility of witnesses before it. The BoE in its appeal must demonstrate that the BTA’s and BoR’s weighing of evidence and the force it applied to such evidence was unreasonable or unlawful, and the standard the BoE must meet is that the BTA and BoR abused their discretion. This is a difficult standard to meet. It means that the BoE must prove that the BTA exhibited an unreasonable, arbitrary or unconscionable attitude.

The court found that while the BoE pointed to matters that definitely relate to the probative force of the appraisal, it failed to establish unlawfulness or an arbitrary or unconscionable attitude on the part of the BTA in adopting the appraisal.

During testimony, the appraiser provided his reasons for using the approach that he did and for why he did not use the cost approach. It was in within the discretion of the trier of fact, i.e., the BoR and the BTA, to credit the appraiser’s testimony and report.

When evaluating the merits of whether to appeal the decision of the BTA in a property valuation, we need to keep in mind that the court will not disturb the BTA’s decision merely because a different expert might have found merit in using another approach.