The Ohio Supreme Court (the Court) recently issued another opinion real property valuations on December 28, 2016 in an appeal of a Board of Tax Appeals (BTA) December. In Columbus City Schools Bd. of Edn. v. Franklin Cty. Bd. of Revision (Slip Opinion No. 2016-Ohio-8375), the valuation dispute focused on the appropriate valuation of 16 unsold condo units in a 20-unit condominium development for the 2009 tax year.
The county auditor valued the 16 condo units at $5,986,400. The property owner provided an appraisal by an MAI certified appraiser that valued the condo units at $2,900,000. The auditor valued the units as 16 separate units and the appraiser valued the units as a single economic unit similar to an apartment complex. His reasoning was based upon the changing real estate market after the financial meltdown in 2008 that resulted in condo units not selling and rented out instead. He treated the condo complex as a ‘stalled’ condominium development and used an income approach and sales comparisons more in line with an apartment complex. The Board of Revision (BOR) adopted the appraiser’s valuation and the BOE appealed. In the BTA hearing the BOE provided conveyance fee statements for the 4 units that previously sold along with square footage information from the county auditor’s web site.
The BTA overturned the BOR and reinstated the auditor’s higher valuation, resulting in an appeal by the property owner to the Court. The appraiser defended his valuation of the remaining 16 units as ‘one economic unit’ stating that it was the way the market looks at units when sales have stalled at a condo development. The property owner was currently renting out the 16 unsold units. However, only 1 of his 5 sales comparables was a broken condominium complex.
The BTA found that the appraisal was unreliable because it valued the condo units collectively as one would value an apartment complex, which effectively resulted is a discounted value contrary to Ohio law. The BTA also did not consider the appraiser’s sales comparisons to be appropriate to use as comparables because 4 of the 5 were not condo units. Finally, the BTA found additional fault with the appraisal because the cost approach was not considered in completing the valuation. The property in question was new construction, having been built from 2006-2008, which was less than 12 months prior to the tax lien date.
Stating that ‘common ownership doesn’t transform condominium units into an apartment complex’, particularly when the ‘complex’ doesn’t include all of the units (emphasis added), the BTA held that the evidence was not sufficient to support a lower valuation and reinstated the auditor’s valuation.
The property owner argued to the Court that the BTA erred in characterizing the appraiser’s valuation as an improper ‘bulk discount’ but the Court, referencing R.C. 5311.11, disagreed, finding that the appraiser’s method was a back-door approach to an improper discount.
The property owner also claimed that the BOE did not submit evidence to contradict the BOR’s adoption of the appraiser’s valuation and therefore the BTA was acting unreasonably and unlawfully in restating the auditor’s valuation. In making this argument the property owner was invoking what is known as the “Bedford” rule, which provides that once a board of revision has reduced the value of a property based on owner’s evidence, that new value eclipses the auditor’s original valuation, and the board of education cannot rely on it as a default valuation. (See Worthington City Schools Bd. of Edn. vFranklin Cty. Bd. of Revision, 140 Ohio St.3d 248, 2014-Ohio-3620, 17 N.E.3d 537; and Dublin City Schools Bd.of Edn. v. Franklin Cty. Bd. of Revision, 147 Ohio St. 3d 38, 2016 Ohio-3025).
The Court held that the Bedford rule does not require adoption of the BOR valuation because there was a legal error in the BOR’s determination.
Finally, the property owner argued that the BOE had a burden to present evidence of value and that it failed to do so, and therefore the BTA should have adopted the appraiser’s valuation. The Court disagreed, finding that the BOE had submitted the conveyance fee information and deeds for the 4 units which previously sold, and this information was sufficient to permit an independent valuation by the BTA.
To finally resolve matters in this dispute, the Court held that the record contained sufficient information to overturn the BOR’s adoption of the appraisal value and contained sufficient information for the BTA to perform an independent valuation of the units. The Court then remanded the case back to the BTA instructing it to determine the value of each individual unit based upon sales price and other evidence in the record.
This decision provides some needed clarity but is not good news for condo developers who are still struggling to sell units in their developments.