Opinion
No. 75-231
Decided December 26, 1975. Opinion modified and as modified petition for rehearing denied February 5, 1976. Certiorari granted April 19, 1976.
In eminent domain action to obtain real property for use as unimproved real estate, an award of $103,000 based on the value of the land exclusive of improvements was granted, and the condemning authority appealed.
Reversed
1. EMINENT DOMAIN — Demolition Costs — Not A Factor — Market Value — Exception — Comparable Sales — Use Permitted — Demonstrate — Property in Comparable Condition. Generally, demolition costs or salvage value may not be used as a factor in determining the market value of property being condemned; however, in determining whether other properties are comparable to the subject property, it may be proper to consider demolition costs or salvage value and to add or subtract these from the sales price of that property so as to ascertain its true value in a condition comparable to the subject property.
2. Demolition Costs — Use Permitted — Valuation — Comparable Property — — Requisite Foundation — Described. Even where salvage or demolition costs are used to assign a value to comparable property in a condition similar to that of property being condemned, before such expenses may be considered, a foundation must be laid establishing the following: First, whether at the time of sale, the purchaser reasonably contemplated demolishing the improvements located on the land, and second, whether the improvements located on the land themselves have any value and whether these considerations in fact affected market value.
3. Expert Testimony — Demolition Expenses — Not Based — Firsthand Knowledge — Not Permissible. Inasmuch as expert's testimony in condemnation proceedings relative to demolition expenses involved in certain comparable sales or property was testimony not based upon the expert's firsthand knowledge of those expenses, the expert should not have been permitted to testify as to the amount of those expenses.
4. Expert Witness — Testimony in Earlier Proceeding — Lower Rate of Increase — Error — Preclude Cross-Examination — That Testimony. Where expert had testified in earlier condemnation proceeding as to a lower rate of increase to be applied to properties, it was error not to allow condemning authority to cross-examine the expert relative to that earlier testimony.
5. Expert Witness — Basis of Valuation — Incompetent Evidence — Reversal Required. Where expert based his conclusion of value of property to be condemned on six comparable sales, and on three of those sales his conclusion of value was based in part on the erroneous addition of demolition costs, the receipt of that incompetent evidence so tainted the expert's testimony as to make it inadequate to serve as a basis for the award; hence, the errors made in regard to the testimony of the expert were of such magnitude as to require reversal.
Appeal from the District Court of the City and County of Denver, The Honorable Robert T. Kingsley, Judge.
John H. Williamson, for petitioner-appellant.
Hoffman, Goldstein, Armour Lonnquist, P.C., Gilbert Goldstein, for respondents-appellees.
Division I.
Denver Urban Renewal Authority (DURA) filed an action in eminent domain to obtain title to respondent's real property. Being dissatisfied with the certificate of ascertainment and assessment of value returned by a commission of freeholders, DURA appeals. We reverse.
Although some improvements were located on the property, DURA sought to acquire it for use as unimproved real estate. The parties stipulated that the value of these improvements was $22,000 and that that amount should be added to the value of the land in determining the amount of the award. DURA called two appraisers who testified that the value of the land alone was $80,000. Respondent's appraiser, Chase, testified that the land was worth $110,000 while respondent himself testified to a value of $119,000. The commission assessed the value of the land, exclusive of improvements, at $103,000.
All of the appraisers based their testimony on the market data, or comparable sales, approach to value. By this method, the subject property is compared with other properties similar in character and locality which have recently been sold and thus have a known value. Respondent's appraiser, Chase, relied on six comparable sales. With respect to three of these, he testified to the purchase price and additionally to what the buyers of those properties paid for demolishing improvements that were located on those properties.
This testimony concerning demolition cost is the basis of DURA's principal contentions of error. First, they urge that the addition of demolition expense to the sales price resulted in use of an improper measure of value, and secondly that Chase's testimony on such expense was not based on firsthand knowledge and thus constituted hearsay. We agree with both of these contentions.
[1,2] The definition of market value, as stated in the cases, see, e.g., Department of Highways v. Schulhoff, 167 Colo. 72, 445 P.2d 402, is correctly set forth in Colo. J.I. 26:3. As applicable to this case, that instruction states:
" 'Reasonable market value' means the fair, actual, cash market value of the property. It is the price the property could have been sold for on the open market, for cash, under the usual and ordinary circumstances, that is, under those circumstances, where the owner was willing to sell and the purchaser was willing to buy, but neither was under an obligation to do so."
Generally, demolition costs or salvage value may not be used as a factor in determining the market value of the property being condemned. However, in determining whether other properties are comparable to the subject property it may be proper to consider demolition costs or salvage value and to add or subtract these from the sales price of that property in determining its true value in a condition comparable to the subject property. But even for that purpose, before such expense may be considered, a foundation must be laid establishing the following: First, whether at the time of sale, the purchaser reasonably contemplated demolishing the improvements located on the land, and second, whether the improvements located on the land themselves have any value and whether these considerations in fact affected the market value.
With respect to the first of these points, it is clear that if the purchaser of one of the comparable sales properties referred to by Chase bought it with the intention of using the improvements located thereon, the price that he paid should not have been increased to reflect the money he later spent in tearing down those improvements. And, unless it be shown that no reasonable purchaser would have bought the property for its value as improved real estate, testimony of demolition expense should not have been received. Likewise, regarding the second point, before demolition costs may be added to the purchase price of the comparable sales to arrive at market value, there must be evidence presented that the improvements removed from the property had no value as salvage or otherwise.
No foundation of this type was offered as to the three comparable sales to which Chase added later demolition expense. Instead, he gave a mere recital of such costs. Absent a proper foundation, receiving such testimony and using the sum of purchase price and demolition costs as "market value" was error. See Denver v. Hinsey, 177 Colo. 178, 493 P.2d 348; and Department of Highways v. Schulhoff, supra.
The misleading nature of such evidence is demonstrated by Chase's testimony concerning one of his comparable sales. This was a 1961 sale of the subject property itself. Chase added to the $27,000 sales price, $18,000 which was later paid for demolition of improvements located on the land, and thus concluded that the actual market value in 1961 was $45,000. He applied an annual appreciation percentage to that figure in order to arrive at the value on the date of taking in 1973. Because the testimony of the respondent disclosed that the purchasers had anticipated spending considerably less than $18,000 for demolition when the property was purchased, $45,000 was not the true fair market value of the property in 1961. This error was compounded when Chase updated the $45,000 figure to the date of taking. Obviously, if the actual anticipated cost of demolition which the purchaser contemplated as part of his cost of the land had been used, which would have been proper, Chase's opinion of present value would have been considerably lower.
[3] DURA contends that Chase's testimony of demolition expense as to other comparable sales was inadmissible as not being based on firsthand knowledge of those expenses. Although § 38-1-118, C.R.S. 1973, provides that "Any witness . . . may state the consideration involved in any recorded transfer of property. . . ." (emphasis supplied), the statute does not authorize the testimony challenged here. A recorded sale reflects only the actual consideration paid and not the anticipated demolition expense which the purchaser may consider part of the value of the land. Thus, while Chase was competent to testify as to the sales price of the comparable properties, he should not have been permitted to testify as to the alleged amount paid to raze the improvements located thereon.
"A witness who has given his opinion as to value may state the reasons for his opinion, and he may of course state as such reasons any circumstances which he would be allowed to give in evidence as independent facts; but he cannot under the guise of fortifying his opinion state to the jury any facts which, either because the facts themselves are not relevant or because his knowledge of the facts is entirely based on hearsay, are themselves inadmissible." 5 P. Nichols, Eminent Domain § 18.45[1] (rev. 3rd ed. J. Sackman); Denver v. Quick, 108 Colo. 111, 113 P.2d 999.
[4] DURA also urges that the commission erred in unduly limiting its cross-examination of Chase. Chase had testified in an earlier condemnation proceeding of a lower rate of increase to be applied to properties. DURA attempted to question Chase on what effect the use of such lower rate of increase would have on his determination of the market value of the subject property. The scope of cross-examination of valuation experts in condemnation proceedings is broad. See Nichols, supra § 18.45[2]; Board of County Commissioners v. H. A. Nottingham Sons, Inc., 36 Colo. App. 265, 540 P.2d 1126. Therefore, we conclude that the commission erred in not allowing DURA to proceed on this line of cross-examination.
[5] Having concluded that Chase's testimony and his use of demolition costs in his computations were improper and also that the limitation of cross-examination of Chase was erroneous, we must now consider whether the errors were of such magnitude as to require reversal. Chase based his conclusion of value of the subject property on six comparable sales, and on three of them his conclusion of value was based in part on the erroneous addition of demolition cost. The receipt of this incompetent evidence regarding the costs of demolition so tainted the appraiser's testimony as to make it inadequate to serve as a basis for the award. Our conclusion is buttressed by the limitation on cross-examination of this witness.
DURA challenges the admissibility of the property owner's testimony, however its admission was proper, with DURA's objections merely going to the weight to be accorded it. See Epstein v. Denver, 133 Colo. 104, 293 P.2d 308; Wassenich v. Denver, 67 Colo. 456, 186 P. 533. However, we find the errors committed with regard to the testimony on demolition costs and the limitation of cross-examination to be so highly prejudicial as to require a new trial. See Cheyenne v. Frangos, ___ Wyo. ___, ___, 487 P.2d 804.
Judgment reversed and cause remanded for a new trial.
JUDGE COYTE and JUDGE SMITH concur.