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Reliability standards for appraisals in a condemnation action.

The Town of Nags Head, North Carolina (Town), undertook a beach nourishment project along its coastline to combat erosion and improve flood and hurricane protections. The Town notified oceanfront property owners of the project and asked them to grant the Town an easement across the beach portion of their properties for a ten-year period. At the outset of the project, a survey would establish the existing high-water line, and that line would set the property line after the project; from that line to the ocean would be public property, creating a strip of state-owned property between the property line and the ocean. Thus, formerly oceanfront properties would now stop short of the ocean.

The Richardsons, who owned beachfront property, did not grant the requested easement rights so the Town filed a condemnation action. The trial court granted the easement and continued all other hearings, including as to damages, until after the nourishment project was completed.

The damages issue was scheduled for trial before a jury. The Richardsons hired two appraisers to determine the amount of damages, while the Town hired its own appraiser. The appraisers were tasked with determining two values: the difference in the fair market value of the Richardsons' property before and after the taking, and the fair market value of the easement itself. By law, the damages would be the greater value of the two.

The Richardsons' first appraiser determined the before-and-after difference to be $160,000. He also reviewed comparable sales and determined that there was an 8% difference in the value between oceanfront lots that extended to the high-water mark and beachfront lots that stopped short of the ocean. This 8% decline in value was multiplied by the after-taking value to arrive at the value of the easement: $70,000.

The Richardsons' second appraiser determined the value of the entire lot, then, using the persquare-foot value, determined the proportionate value of only the area of the easement. He estimated that the Town's use of the easement area for ten years exploited 90% of its land value. This, plus other negative impacts on the unencumbered property, led to a total impact of $233,000.

The Town's appraiser, on the other hand, determined that the difference in total market value before-and-after the taking was zero, and the fair market value of the easement was just $330. He determined the easement's value by comparing an encumbered property and an unencumbered property.

The jury returned a verdict finding that the fair market value of the easement was $60,000, and the before-and-after difference was zero. Accordingly, the jury awarded the Richardsons $60,000. The trial court, however, overturned the jury's verdict, in part because it concluded there was no evidence from which the jury could find a fair market value of the easement, so the only available calculation was the before-and-after approach, which the jury found to be $0. The Richardsons appealed.

Because the jury calculated a before-and-after measure of value to be zero, the court's review was limited to the jury's calculation of the market value of the easement itself. The Richardsons' first appraiser's calculation of the value of the easement was derived solely from the project's impacts, which cannot be considered in valuing the easement, because by statute the impact of the proposed project for which the property is taken cannot be considered. The market value of the easement must be determined using the conditions at the time of the taking. Therefore, the first appraiser's approach considered disallowed information and was properly rejected by the trial court.

The second appraiser's approach did not consider the property's condition after the taking, so it provided at least some evidence in support of the jury's finding. But the Town argued that the appraiser's testimony was inadmissible because it failed to meet the criteria of the Rules of Evidence. To be admitted under the Rules, expert testimony must be the product of reliable principles and methods, and testimony that is based on a conclusory opinion does not meet that standard. The second appraiser based his 90% multiplier on his opinion, not by articulating an admissible method. Therefore, the court of appeals ruled the second appraiser's testimony was not admissible, and it reversed the trial court and remanded for a new hearing with additional new evidence.

Town of Nags Head v. Richardson

Court of Appeals of North Carolina

July 3, 2018

817 S.E.2d 874

Benjamin A. Blair, JD, is a partner in the Indianapolis office of the international law firm of Faegre Baker Daniels LLP, where his practice focuses on state and local tax litigation for clients across the United States. A frequent speaker and author on taxation and valuation issues, Blair holds a juris doctor from the Indiana University Maurer School of Law, where he also serves as an adjunct professor. Contact:
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Title Annotation:Recent Court Decisions on Real Estate and Valuation
Author:Blair, Benjamin A.
Publication:Appraisal Journal
Date:Mar 22, 2019
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