Clark v. Washington County Assessor

Opinion

IN THE OREGON TAX COURT MAGISTRATE DIVISION Property Tax

SHERRY CLARK, ) ) Plaintiff, ) TC-MD 160101R ) v. ) ) WASHINGTON COUNTY ASSESSOR, ) ) Defendant. ) FINAL DECISION1

Plaintiff appeals the real market value of property identified as Account R2045572

(subject property) for the 2015-16 tax year. On August 22, 2016, a trial was held in the Oregon

Tax Court in Salem, Oregon. Plaintiff, Sherry Clark (Clark) appeared and testified on her own

behalf. Adrian Wilkes appeared on behalf of Defendant. Richard Darst Thompson (Thompson)

testified on behalf of Defendant. Plaintiff’s Exhibits 1, 7, 8 and 17 through 35 were received

without objection. Plaintiff’s Exhibits 2 through 6, and 9 through 16 were received over

Defendant’s objection. Defendant’s Exhibit A was received without objection.

I. STATEMENT OF FACTS

A. Description of the Property

The subject property is a 1,963 square-foot, Cape Cod style, single-family home,

originally built in the 1950’s, then almost completely rebuilt after a 2013 fire. (Ptf’s Ex 10.)

The home is situated on a 9,583 square foot lot in Beaverton, Oregon, in an area surrounded by

larger and newer homes. (Id.) The home has three bedrooms, two bathrooms, a rear deck area,

an attic room, and a one vehicle carport. (See e.g. Ptf’s Exs 5, 24, 25, and 29-31.)

1 This Final Decision incorporates without change the court’s Decision, entered February 22, 2017. The court did not receive a statement of costs and disbursements within 14 days after its Decision was entered. See Tax Court Rule–Magistrate Division (TCR–MD) 16 C(1).

FINAL DECISION TC-MD 160101R 1 B. The Roll Value and Parties’ Value Requests

Defendant reduced the real market value for the subject property after the 2013 fire

pursuant to ORS 308.425. (Ptf’s Ex 1.) Defendant increased the real market value for the 2015-

16 year, after the subject property was rebuilt, to $346,950. (Id.); See ORS 308.425(4). Plaintiff

appealed that value to the county board of property tax appeals (Board), and the Board reduced

the real market value to $337,000. (Ptf’s Ex 2.) Plaintiff appealed the Board’s value to this

court, requesting a reduction to $305,000. (Ptf’s Ex 17.) Defendant requests that the court

reduce the real market value of the subject property to $330,000. (Def’s Ex A at 2.)

C. Plaintiff’s Evidence

Clark testified that she purchased the subject property as a bank-owned foreclosed

property in 2011 for $178,500. In 2013, a fire destroyed most of the home. Clark testified the

house was “torn down to the studs,” requiring the replacement of all siding, windows, sheet rock,

cabinets, flooring, lighting, fixtures, plumbing, and electrical wiring. Clark’s insurance company

paid to rebuild the home at a cost of $279,000. Clark also paid unspecified amounts for the

following: upgraded deck, upgrade to quartz countertops in the kitchen and bathroom, and a

replaced water main-line that had burst. Clark testified that her insurance company did not allow

her to tear down the entire framing and start over, so the house retained its entire 1950’s

“outdated” configuration, except that a “bump out” was added to the attic to conform to current

building codes. The house was not retrofitted for earthquakes.

Plaintiff submitted and relied upon an appraisal report prepared by Nathan Bernhardt

(Bernhardt), an Oregon Certified Residential Appraiser, who did not testify. Bernhardt estimated

the real market value of the subject property was $305,000 as of January 1, 2015. (Ptf’s Ex 8-

16.) Bernhardt’s value estimate was based solely on the sales comparison approach, explaining

FINAL DECISION TC-MD 160101R 2 “buyers, sellers, and real estate professionals typically prefer the sales comparison approach, far

and above, the other two approaches, for properties like the subject [property].” (Ptf’s Ex 11.)

Bernhardt considered four homes within 3.1 miles2 of the subject property sold between

January 30, 2014 and December 20, 2014, and one home which had a sale pending as of the

report date of December 30, 2015. Id. The unadjusted sale prices of the four comparable sales

ranged from a low of $260,000 to a high of $311,000. (Ptf’s Ex 10, 13.) The report notes that

“subject street is a residential feeder with slightly higher traffic than typical residential streets.”

(Ptf’s Ex 10.) The report also notes that “surrounding homes are larger, newer homes in good

condition.” Id. Bernhard’s report rated the subject property as “good/remod” and the actual age

as 65 years old.

Bernhardt’s report includes two comparable properties (#1 and #2) also used in

Defendant’s report (#2 and #3). (Ptf’s Ex 10; Def’s Ex A at 11.) The report adjusted the sales

price for the sale date, location, lot size, gross living area, and whether the home had a garage or

carport. For comparable #1, Bernhardt’s report adjusted $14,000 for the date of sale, $1,250 for

the site3, $21,660 for the gross living area, subtracted $12,000 for a two-car garage, and arrived

at an adjusted price of $284,910. Bernhard’s report on comparable #2, adjusted the price by

$2,800 for the sale date, $20,000 for the location, $1,750 for the site, $24,180 for the gross living

area, subtracted $6,000 for a one-car garage, and arrived at an adjusted sales price of $321,730.

Clark testified that she felt the properties selected by the Defendant in its appraisal were

too new and did not reflect the outdated floor plan of the subject property. She testified that the

2 The summary section incorrectly states the comparables were “within one mile and have sold within one year of the subject’s Jan 2015 assessment date.” (Ptf’s Ex 10.) See the section labeled “Proximity to Subject,” (Id.) and comparable #5 which was not verified as sold by the report date. (Ptf’s Ex 13.) 3 The adjustment appears to be an error because the comparable was actually larger than the subject property.

FINAL DECISION TC-MD 160101R 3 insurance company did not allow her to retrofit for earthquake safety, which in her opinion

negatively impacts its value to potential buyers. Lastly, she testified that did not believe the cost

approach was a good method to estimate the value of the subject property.

D. Defendant’s Evidence

Defendant submitted an appraisal report prepared by Thompson. Thompson testified that

he has 12 years’ experience as a registered property appraiser. Thompson estimated the real

market value of the subject property, using the sales comparison approach, at $330,000. (Def’s

Ex A at 2.) Thompson testified the subject property’s neighborhood contains mostly newer

homes from the mid-1990s to around 2005 with a few older infill homes. The newer homes are

larger and of higher quality, but would not be considered “high-end” homes. Homes in the

surrounding neighborhood ranged from the low-end of $260,000 to a high-end of almost

$600,000. Thompson testified that the subject property is on the lower end for the neighborhood,

but, because of the nicer homes in the area, the value of the subject property is increased due to

“progression.” 4

Thompson selected four properties with sales occurring between January 30, 2014 and

January 25, 2015. (Def’s Ex A at 11-12.) Those comparables sold for prices ranging from

$260,000 to $329,000. Id. Thompson made adjustments for a variety of differences to the

subject property that he deemed relevant for estimating its value. Those adjustments included:

date of sale, location, size, traffic, physical condition, number of rooms/bathrooms, and whether

the property included a garage or carport. He also provided pictures of the subject property and

the comparables. (Def’s Ex A at 8-10, 14-20.)

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4 Defendant cites to Appraisal Institute, The Appraisal of Real Estate, Chapter 3, page 42 (13th ed 2009).

FINAL DECISION TC-MD 160101R 4 Thompson did not adjust for the 1950’s layout of the subject property, but did adjust for

the attic area because the ceiling height was lower than new construction. He testified that

Plaintiff’s concern about lack of earthquake retrofitting was, in his experience, not an issue for

buyers and would not impact its real market value. Thompson testified that a City of Beaverton

2014 traffic survey shows a traffic count for the road upon which the subject property sits is

1,614 cars per day. He testified that it is a little high for a 25-mph residential street, but not so

much as to require an adjustment for traffic.

Thompson testified that he selected properties further from the subject property than

Plaintiff’s appraiser because there were no 1950’s homes with a significant remodel in the

immediate area. Thompson’s comparable #1 is an example of going away from the subject in

order to find a home similar in age and neighborhood. This comparable was not used by

Plaintiff’s appraiser. Thompson found this property slightly inferior to the subject property

because fewer repairs had been performed. The sales price for comparable #1 was $329,000, for

which Thompson adjusted for the sale date, physical condition, gross living area, lack of attic

and it having a two car garage, before arriving at an adjusted sale price of $331,500. Thompson

testified that both appraisers (he and Plaintiff’s appraiser) used his comparable #2. Thompson

determined the adjusted sales price was $329,800, whereas Plaintiff’s appraisal found it was

$284,910. Thompson testified that the primary differences were his adjustments for the property

being on a busy street with speed bumps, and his adjustment because the remodel of the

comparable appeared to be from the 1970s. That comparable also had vinyl siding which is

inferior to the Hardie Plank siding on the subject property. Thompson testified that compariable

#3 was also used in both appraisals, and represented the most divergent of the adjustments.

Thompson adjusted this property for an inferior location because it was “influenced” by a busy

FINAL DECISION TC-MD 160101R 5 street and because part of the infill is apartments. Thompson also compared two years of sales in

each neighborhood and found that they were consistently lower in the area surrounding

comparable #3.

Thompson testified that Plaintiff’s appraisal report contained deficiencies such as

multiple math and adjustment errors, and failed to make adequate adjustments for location.

Thompson did not consider Plaintiff’s comparable #5 because it was on the market for a very

long time; the house was bought as a fixer and was being flipped; and because it was not a closed

sale at the time Plaintiff’s report was made. Thompson also criticized Plaintiff’s report for not

considering the cost approach, which is required by the appraisal guide and is also important for

newly remodeled properties.

Thompson testified that he performed a cost approach because the subject property was

almost new after the remodel. He suggested that the cost approach in this case serves as a check

against his market sales analysis. Thompson used the Marshall & Shift cost guidelines and

reviewed approximately 25 land sales. He found land sales had a low of $110,000 and a high of

$260,000. Thompson opined the site was worth $160,000 and the total value under the cost

approach was $332,000.

II. ANALYSIS

The issue before the court is the real market value of the subject property for the 2015-16

tax year. “Real market value is the standard used throughout the ad valorem statutes except for

special assessments.” Richardson v. Clackamas County Assessor, TC-MD 020869D, WL

21263620 at *2 (Mar 26, 2003) (citations omitted). Real market value is defined in ORS

308.205(1), 5 which states:

5 The court’s references to the Oregon Revised Statutes (ORS) are to 2013.

FINAL DECISION TC-MD 160101R 6 “Real market value of all property, real and personal, means 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.”

The assessment date for the 2015-16 tax year is January 1, 2015. ORS 308.007; ORS

308.210. The real market value of Property “shall be determined by methods and procedures in

accordance with rules adopted by the Department of Revenue[.]” ORS 308.205(2). The three

approaches to value that must be considered are: (1) the cost approach; (2) the sales comparison

approach; and (3) the income approach. OAR 150-308-0240(2)(a). Although all three

approaches must be considered, all three approaches may not be applicable in a given case. Id.

Here, both parties relied on the sales comparison approach, although Defendant also performed a

cost approach analysis and considered, but rejected, the income approach.

The sales comparison approach “may be used to value improved properties, vacant land,

or land being considered as though vacant.” Chambers Management Corp v. Lane County

Assessor, TC-MD 060354D, WL 1068455 at *3 (Or Tax M Div Apr 3, 2007) (citations omitted).

“The court looks for arm’s length sale transactions of property similar in size, quality, age and

location” to the Property. Richardson, WL 21263620 at *3.

“In utilizing the sales comparison approach only actual market transactions of property comparable to the subject, or adjusted to be comparable, will be used. All transactions utilized in the sales comparison approach must be verified to ensure they reflect arms-length market transactions. When nontypical market conditions of sale are involved in a transaction (duress, death, foreclosures, interrelated corporations or persons, etc.) the transaction will not be used in the sales comparison approach unless market-based adjustments can be made for the nontypical market condition.”

OAR 150-308-0240(2)(c).

Plaintiffs bear the burden of proof and must establish their case by a preponderance of the

evidence. ORS 305.427. A “[p]reponderance of the evidence means the greater weight of

FINAL DECISION TC-MD 160101R 7 evidence, the more convincing evidence.” Feves v. Dept. of Revenue, 4 OTR 302, 312 (1971).

“[I]t is not enough for a taxpayer to criticize a county’s position. Taxpayers must provide

competent evidence of the [real market value] of their property.” Woods v. Dept. of Rev., 16

OTR 56, 59 (2002). “[I]f the evidence is inconclusive or unpersuasive, the taxpayer will have

failed to meet his burden of proof * * *.” Miller v. Dept. of Rev., 327 Or 129, 958 P2d 833

(1998), (citing Reed v. Dept. of Rev., 310 Or 260, 265, 798 P2d 235 (1990)).

Plaintiff relied upon an appraisal report prepared by Bernhardt. The court has a number

of concerns with the report. There are several mathematical errors and adjustments which were

made in the wrong direction. The report uses a “comparable” property (#5) which was not a

confirmed sale at the time of the appraisal report. Plaintiff’s appraisal contains no pictures of the

other comparable properties making the selection and evaluation of comparables less helpful.

Most importantly, Bernhardt did not testify at trial to explain his adjustments. Why for example,

did Bernhardt make no location or physical condition adjustments for Plaintiff’s comparable #1,

while Defendant’s appraisal (Defendant’s comparable #2) adjusted the location by $26,000 due

to traffic and another $26,000 due to its physical condition?

Thompson was able to provide testimony about the adjustments. Thompson explained

that the condition adjustment was done because that comparable was remodeled in the 1970s

while the subject property was almost completely rebuilt after 2013. Thompson explained that

the traffic adjustments were based on his own observations and a traffic report prepared by the

city of Beaverton. The justifications for the specific adjustments are crucial in this case because

Plaintiff’s appraisal is less than 7.5 percent below Defendant’s value for the subject property.

The court is unable to ascertain whether the comparables selected and adjustments made by

Bernhardt were more accurate than those of Thompson.

FINAL DECISION TC-MD 160101R 8 As a secondary matter, Bernhardt’s failure to analyze the value of the subject property

under the cost approach detracts from the appraisal. OAR 150-308-0240(2)(c) requires that the

cost approach be considered. While parties and the court often pay less attention to the cost

approach for non-commercial residential properties, when properties are recently and mostly

completely rebuilt, the cost approach can serve an important check to the market sales approach.

In this case, the cost approach as calculated by Defendant is almost an exact match to the market

approach. Plaintiff acknowledges that the cost to rebuild the subject property after the 2013 fire

was $279,000, and that figure did not include some additional work and upgrades. Given

Defendant’s evidence that the lowest recent land sale in the area was $110,000, the court finds it

hard to accept Plaintiff’s contention that the land and house value of the subject property is only

$305,000.

Finally, there is Clark’s own testimony and other exhibits relating to value. Clark argued

that the outdated configuration and lack of earthquake retrofitting is evidence supporting a lower

valuation. It appears to the court that design, quality of construction, and physical conditions

were already considered in both appraisals. Clark’s testimony provided no quantitative

differential evidence about these issues for the court to make further adjustments. Clark also

offered photographs and property tax information to challenge a previous appraisal submitted by

Defendant at the Board hearing. That appraisal was not submitted by Defendant at the trial, and

the court does not find helpful an evaluation or argument about the properties selected for review

in that appraisal.

The burden of proof requires that the party seeking relief (Plaintiff in this case) provide

evidence to support their argument. In this case Plaintiff’s evidence is unpersuasive. Plaintiff

has failed to meet the requisite burden of proof. Even though the burden has not shifted, “the

FINAL DECISION TC-MD 160101R 9 court has jurisdiction to determine the real market value or correct valuation on the basis of the

evidence before the court, without regard to the values pleaded by the parties.” ORS 305.412.

Here, Defendant requested that the court reduce the value determined by the Board from

$337,000 to $330,000. Thus, the court will address Defendant’s value evidence.

Defendant submitted an appraisal report that evaluated the subject property by the cost

and sales comparison approaches. Thompson provided testimony which supported and

explained why he chose comparable properties and the basis for his adjustments. Thompson

explained why he selected properties further away from the subject so he could capture the

qualities of properties which were older but had significant recent remodeling work done. He

also adequately explained the adjustments due to traffic conditions which were supported by city

traffic count data. The cost approach analysis closely matched and supported the value as found

using the sale comparison approach. Overall, the court is satisfied that the value as determined

by Mr. Thompson, $330,000, represents the real market value for the subject property as of

January 1, 2015.

III. CONCLUSION

After careful review of the testimony and evidence, the court concludes that Plaintiff

failed to carry her burden of proof. Defendant’s evidence of value was persuasive and supports a

2015-16 real market value of $330,000 for account R2045572. Now, therefore,

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FINAL DECISION TC-MD 160101R 10 IT IS THE DECISION OF THIS COURT that the real market value of property

identified as account R2045572 for the 2015-16 tax year is $330,000.

RICHARD DAVIS MAGISTRATE

If you want to appeal this Final Decision, file a complaint in the Regular Division of the Oregon Tax Court, by mailing to: 1163 State Street, Salem, OR 97301-2563; or by hand delivery to: Fourth Floor, 1241 State Street, Salem, OR.

Your complaint must be submitted within 60 days after the date of the Final Decision or this Final Decision cannot be changed. TCR-MD 19 B.

This document was filed and entered on March 16, 2017.

FINAL DECISION TC-MD 160101R 11