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Appraisals for financing may not adequately reflect tax value.

A Lorain County, Ohio, homeowner, Musto, challenged a decision of the Board of Tax Appeals (BTA) to affirm use of the county auditor's 2012 valuation of her property. Musto argued that the BTA's decision was unlawful and unreasonable since she produced evidence that invalidates the auditor's valuation. Further, she argued that the BTA owed a legal duty to independently determine a value based on her evidence.

Musto owns a ten-acre property in Lorain County, improved with a 4,094 square-foot single-family home, a pole barn, and an indoor horse arena. In tax year 2012, the county auditor valued the property at $547,260. Musto filed a complaint with the BOR, requesting a reduction in value to $405,000 based, in part, on a 2009 appraisal of the subject property that had been prepared for refinancing purposes. After a hearing, the Board of Review (BOR) issued a decision affirming the auditor's value. Musto appealed to the BTA.

At the BTA hearing, Musto relied on the refinancing appraisal report initially introduced at the BOR hearing. The appraiser who prepared the refinancing appraisal did not appear at the BTA hearing.

Musto also introduced a new appraisal report prepared by a certified Ohio appraiser. This appraiser identified four comparable sales, made adjustments, and opined a $450,000 value as of the tax-lien date. The appraiser who prepared the new appraisal did not appear at the BTA hearing. The BTA issued a decision affirming the BOR's valuation. Musto appealed to the state supreme court.

The supreme court upheld the auditor's valuation in the face of Musto's appraisal evidence. In its rationale, the court recalled that "the essence of an assessment fixes the value based on facts as they exist at a certain point in time." Consequently, the three-year interval casts doubt on Musto's refinance-related appraisal. Moreover, the court said that "appraisals for financing purposes are not necessarily a complete and thorough evaluation of the property." It noted that the purpose, focus, and considerations of financing appraisals can be very different, "which may frame/impact the scope of the appraiser's work product." The court found that unless the appraiser offers "explanatory testimony" and there is an opportunity for cross-examination, it is very difficult to assess the value of a financing appraisal for ad valorem taxation purposes. In the present case the supreme court found that in the absence of direct testimony about the preparation and actual use of the financing appraisal and the new appraisal, the BTA had been reasonably wary of relying on those appraisals.

In regards to the county auditor's methodology, the court noted that the property-record card indicated that the auditor relied exclusively on the cost approach to valuation. The court noted that when using this method, the auditor first estimates the new replacement cost, then makes deductions for depreciation including physical deterioration and functional and economic obsolescence to ultimately arrive at the value of the improvements in their present condition.

The court recognized that the cost approach is important when '"estimating the market value of new or relatively new construction." (Quoting The Appraisal of Real Estate, twelfth edition, 354.) Here, the subject property had been constructed more than twelve years prior to the tax-lien date. This delay creates difficulties in adjusting a cost approach, although the age of the improvements did not render the cost approach per se inapplicable, and Musto did not identify any point of dispute with the figures yielded by the auditor's cost approach.

Having considered Musto's evidence as well as her critique of the auditor's valuation method, the supreme court disagreed that the taxpayer's evidence negated the auditor's valuation of the property, and found the BTA reasonably acted within its broad discretion by assigning minimal weight to Musto's evidence. Thus, because Musto failed to negate the auditor's valuation, the BTA acted reasonably and lawfully when it retained that valuation of the property.

Musto v. Lorain Cty Bd. of Revision

Supreme Court of Ohio

December 13, 2016

2016 WL 7230863
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Title Annotation:Recent Court Decisions on Real Estate and Valuation
Publication:Appraisal Journal
Geographic Code:1U3OH
Date:Mar 22, 2017
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