Opinion
No. 2-390 / 01-1354.
Filed February 28, 2003.
Appeal from the Iowa District Court for Scott County, J. Hobart Darbyshire, Judge.
A cooperative housing group appeals the district court's decision to uphold a property valuation for tax assessment purposes. REVERSED.
Richard Davidson of Lane Waterman, Davenport, for appellant.
John R. Martin, Davenport, for appellee.
Considered by Vogel, P.J., and Miller and Vaitheswaran, JJ.
This is a taxpayer appeal from a district court ruling upholding the Davenport Board of Review's valuation of a cooperative apartment complex. We reverse.
I. Background Facts and Proceedings
Windsor Crest Apartments Cooperative purchased apartment buildings in Davenport containing 144 units and seventy-six garages. The purchase price was $5,000,000.
Following the purchase, the Davenport Assessor retained a commercial classification for the property. Windsor Crest filed a petition with the Board of Review objecting to the classification. The Board agreed to reclassify the property as residential but increased the assessed value from an original valuation of $3,868,000 to $6,059,000. Windsor Crest appealed the Board's action to the district court.
Following an evidentiary hearing, the district court upheld the Board's valuation. This appeal followed.
II. Scope and Standards of Review
Our review of the Board's action is de novo. Riley v. Bd. of Review, 549 N.W.2d 289, 290 (Iowa 1996). There is no presumption as to the correctness of the Board's valuation. Iowa Code § 441.39 (1999). Windsor Crest has the burden to prove by a preponderance of the evidence that: 1) the challenged valuation is excessive, inadequate, or capricious and 2) what the valuation should be. Post-Newsweek Cable, Inc. v. Bd. of Review, 497 N.W.2d 810, 813-14 (Iowa 1993).
Because Windsor Crest did not present competent evidence from two disinterested witnesses, the burden of proof did not shift to the Board. Post-Newsweek, 497 N.W.2d at 813.
III. Merits
A. Statutory Framework. All property subject to taxation is to be valued at its actual value. Iowa Code § 441.21(1)(a). "Actual value" is the fair and reasonable market value of the property. Iowa Code § 441.21(1)(b). "Market value" is
the fair and reasonable exchange in the year in which the property is listed and valued between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and each being familiar with all the facts relating to the particular property.
Id.
B. Board's Methodology. The Board's appraiser, Charles Mirocha, stated the best approach to valuing this type of property was a market approach based on comparative sales. However, he found no sales of cooperatives in the area or in nearby areas.
Because he had no comparable sales data on cooperative housing, Mirocha compared the Windsor Crest property with condominiums in the area. He did not adjust his final valuation of the cooperative to account for differences between condominiums and cooperatives.
C. Windsor Crest's Critique. Windsor Crest's primary objection to Mirocha's valuation is that he compared cooperatives to condominiums. David Barker, a Windsor Crest shareholder with a doctorate in economics, opined that there were several reasons to treat cooperatives differently from condominiums. He cited a nationwide study of cooperative and condominium values. The authors of the study analyzed a variety of factors that create a comparatively lower market value for cooperatives than condominiums. The factors included: 1) the higher risk borne by cooperative shareholders relative to owners of condominium units, 2) the potentially higher financing rates for cooperatives, 3) the lesser liquidity of condominiums combined with the greater costs of searching for information, and, 4) living restrictions placed on cooperatives. See Allen and John Goodman, The Co-op Discount, 14 J. Real Est. Fin. Econ. 223-233 (1997).
The Board's assessor did not contradict this testimony. Therefore, Barker's unrefuted evidence was sufficient to establish that the Board's approach to valuing the Windsor Crest property was flawed. See Post-Newsweek Cable, Inc., 497 N.W.2d at 814 (when considering assessment appeal, court is free to give no weight to proffered evidence of comparable sales it finds not to be reflective of market value). See generally 15A Am. Jur.2d Condominiums Cooperative Apartments §§ 1-87 (2002) (comparing and contrasting condominiums and cooperative housing); cf. City of Newton v. Bd. of Review, 532 N.W.2d 771, 774 (Iowa 1995) (noting residents of cooperative had no more ownership interest in the cooperative than an ordinary tenant).
When asked if he had investigated the differences in valuations of condominiums and cooperatives, Mirorcha answered, "No."
We agree with Windsor Crest that the Board did not have a sound basis for comparing the cooperative apartments of Windsor Crest with condominiums in the area in order to arrive at the actual value of the Windsor Crest property. Windsor Crest established that this comparison resulted in an excessive valuation, the first component of its burden of proof.
D. Valuation Based on Sale Price of the Property. Windsor Crest must also prove by a preponderance of the evidence what the proper valuation of the cooperative should be. Iowa Code section 441.21(1)(b) specifies that the sale price of the property in question or comparable property in a normal transaction "shall be taken into consideration in arriving at market value . . . ." This approach depends on the availability of sales prices for the property or comparable property. See Equitable Life Ins. Co. v. Bd. of Review, 281 N.W.2d 821, 823 (Iowa 1979). The sales price approach is preferred over other methods. Boekeloo v. Bd. of Review, 529 N.W.2d 275, 277 (Iowa 1995). Alternate means of valuation are to be used only when market value cannot be established using the sales price approach. Id.
Mirocha declined to consider the actual sale price of the Windsor Crest property because, in his words, "the type of ownership was changed and, of course the type of ownership does affect the value." However, Mirocha was unable to point to any objective factors associated with a cooperative arrangement that warranted a fifty-seven percent increase in valuation from the date of the assessor's 1999 assessment to the date of the 2000 assessment. See Valley Forge Apts. v. Bd. of Review, 239 N.W.2d 148, 151 (Iowa 1976) (stating it was inappropriate for Board to disregard complainant's data).
Windsor Crest presented evidence supporting a $5,000,000 valuation figure. Two appraisers retained by Windsor Crest appraised the property at $4,400,000 just prior to its sale. Barker testified he and his co-owners had not made material improvements to the property from the date of sale to the date of the new assessment. He also noted the sale price included personal property on the premises. Finally, he pointed out that the final price was $600,000 over the appraised value. In the absence of comparable sales of cooperative properties, we believe the $5,000,000 actual sale price for the Windsor Crest properties was the best indicator of its actual value. See Riley, 549 N.W.2d at 291; Office of Assessor v. Dep't of Revenue, 417 N.W.2d 214, 218 (Iowa 1987) (primary method of valuation is sales price of actual property or comparable property); Foreman Clark of Iowa, Inc. v. Bd. of Review, 286 N.W.2d 169, 172 (Iowa 1979).
IV. Disposition
Windsor Crest established that the Board's assessment of $6,059,000 was excessive and the actual value of the property was $5,000,000. We find it unnecessary to address Windsor Crest's remaining arguments.