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A recent, voluntary arm's-length transaction, while not conclusive, is persuasive of market value.

According to the Oregon Tax Court, Magistrate Division, a value adjustment may need to be made to the sale price of a post-assessment date sale by a lender who acquired the property after the former owner defaulted on a loan.

Reynolds Properties LLC (Reynolds) purchased the subject property from a lender in October 2010 for $16,000. The property is a .28-acre lot in Albany, Oregon, located near railroad tracks. The property contains two dwellings constructed in the 1940s and is on an unimproved street that is unpaved and has no city water or sidewalks/curb cuts, but does have city sewer service. A permit has been issued for demolition of one of the structures. The other structure is undergoing significant remodeling to make the building rentable, although it will not meet code requirements.

The real market value (RMV) of the property was originally established by the Linn County Assessor as $74,250, with $40,410 allocated to the land and $33,840 to the improvements. The maximum assessed value (MAV) was $79,070. The assessed value (AV) was $74,250 because the RMV of $74,250 is less than the MAV of $79,070, and according to Oregon Statutes, the AV is generally the lesser of RMV or MAV. Reynolds appealed the assessment values to the Linn County Board of Property Tax Appeals (Board). The Board reduced the RMV to $31,000, allocating $25,000 to the land and $6000 to the improvements, and also reduced the AV to $31,000. Reynolds appealed the Board's order to the court, requesting that the RMV be reduced to $16,000 based on the October 2010 purchase price.

Oregon law defines RMV for property tax assessment purposes as "the amount in cash that could reasonably be expected to be paid by an informed buyer to an informed seller, each acting without compulsion in an arm's-length transaction occurring as of the assessment date for the tax year" Of the three recognized methods for valuing property, the court viewed the sales comparison method as the most appropriate method for valuing residential property. The court believed this to be especially true for older properties, because substantial adjustments must be made under the cost approach and, if the property is not generating income, the income capitalization approach is inapplicable. In this case, the property is owner-occupied and does not generate income.

The Oregon Supreme Court has held that the sale price in a recent, voluntary arm's-length transaction between a buyer and seller, both of whom are knowledgeable and willing, while not conclusive is persuasive of market value. The court determined the key considerations to be whether the October 2010 sale was recent and whether it was arm's-length. The October 2010 sale occurred nine months after the January 1, 2010 assessment date. Reynolds claimed the sale was arm's-length because he is in the business of buying properties, and the bank is knowledgeable about selling properties and used a real estate broker to sell the subject property. Reynolds noted that he and the bank are unrelated parties. Reynolds and the seller had negotiated for several months before agreeing on a mutually acceptable price. Therefore, Reynolds argued the sale price is more reliable than the assessor's value estimate based on unadjusted sale prices of other properties.

The assessor did not submit an appraisal report, but did submit information about five sales. Three were of improved property and two of land only. The sale prices ranged from $60,000 for property with a home superior to the subject to $34,500 for a .18 acre undeveloped lot sold by the bank. The court noted that a post-assessment date sale by a lender who acquired the property after the former owner defaulted on a loan raises questions about whether the sale is truly indicative of the market. Citing The Appraisal of Real Estate, the court noted that adjustments are a key component in evaluating properties. Ideally, if all comparable properties are identical to the subject property, no adjustments will be required; however, this is rarely the case. After researching and verifying transactional data and selecting the appropriate unit of comparison, the appraiser adjusts for any differences.

The court determined the sale price was a good starting point for determining the value of the subject property. However, because the sale occurred nine months after the assessment date and Reynolds acquired the property from a lending institution, some adjustment is necessary to arrive at an accurate market value determination. Based in part on Reynolds' testimony that towards the latter stages of negotiation the bank's broker was pushing for a sale price of $19,900, the court concluded the RMV as of January 1, 2010 was $20,000.

Reynolds Properties LLC v. Linn County Assessor

Oregon Tax Court, Magistrate Division

January 12, 2012

2012 WL 92929 (Or. Tax Magistrate Div.)
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Title Annotation:Recent Court Decisions; Reynolds Properties LLC and Linn County Assessor
Publication:Appraisal Journal
Geographic Code:1U9OR
Date:Mar 22, 2012
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