To be Argued by: CRAIG A. LESLIE, ESQ. (Time Requested: 15 Minutes) APL-2013-00061 Appellate Division Docket No. CA 12-00434 Erie County Clerk’s Index Nos. I 2009-9034 and I 2010-7588 Court of Appeals of the State of New York IN THE PROCEEDING OF THE APPLICATION OF THE BOARD OF MANAGERS OF FRENCH OAKS CONDOMINIUM, Petitioner-Respondent, - against - TOWN OF AMHERST, HARRY WILLIAMS, Town of Amherst Assessor, BOARD OF ASSESSMENT REVIEW OF THE TOWN OF AMHERST, Respondents-Appellants, and WILLIAMSVILLE CENTRAL SCHOOL DISTRICT, Intervenor. BRIEF FOR RESPONDENTS-APPELLANTS August 5, 2013 PHILLIPS LYTLE LLP Craig A. Leslie, Esq. Paul Morrison-Taylor, Esq. Attorneys for Respondents-Appellants 3400 HSBC Center Buffalo, New York 14203 Tel.: (716) 847-8400 Fax: (716) 852-6100 - i - TABLE OF CONTENTS Page TABLE OF AUTHORITIES ................................................................................... iii QUESTIONS PRESENTED ...................................................................................... 1 JURISDICTION OF THE COURT AND PRESERVATION OF QUESTIONS PRESENTED ...................................................................................... 2 PRELIMINARY STATEMENT ............................................................................... 3 STATEMENT OF FACTS AND PROCEDURAL HISTORY ................................ 8 A. 2009 Proceeding ........................................................................................ 8 B. Appraisals ................................................................................................ 10 C. 2010 Proceeding ...................................................................................... 13 D. Trial and Decision ................................................................................... 13 E. The Town’s Appeal ................................................................................. 14 ARGUMENT ........................................................................................................... 15 POINT I THE STRELL APPRAISAL SHOULD HAVE BEEN STRICKEN AND THE PETITION DISMISSED ..... 15 A. The Strell Appraisal Failed to Comply with the Uniform Rules ........................................................................................ 16 1. The Strell Appraisal Lacked Essential Facts Concerning Each Condominium Unit at Issue ................................... 18 2. The Strell Appraisal Lacked Facts and Figures Concerning the Allegedly Comparable Properties Used to Estimate Rental Income .................................................. 20 3. The Strell Appraisal Failed to Make Necessary Adjustments Concerning the Allegedly Comparable Properties Used to Estimate Rental Income ................... 23 - ii - 4. The Strell Appraisal Lacks Facts, Figures, and Calculations Concerning the Per Square Foot Values that It Adopts ......................................................................... 26 5. The Strell Appraisal Failed to Establish Fair Market Value for Each of the Condominium Units .................... 27 6. The Strell Appraisal Lacked the Facts, Figures and Calculations Required to Support Its Capitalization Rate Conclusion ...................................................................... 29 B. Mr. Strell Violated USPAP ..................................................... 34 POINT II MR. STRELL’S CAPITALIZATION RATE CALCULATION WAS FATALLY FLAWED, AND OTHERWISE ENTITLED TO NO WEIGHT ........................ 37 CONCLUSION ............................................................................................ 44 - iii - TABLE OF AUTHORITIES Page CASES 50540 Realty, Inc. v. Tax Comm. of New York, 136 A.D. 2d 699 (2d Dep’t 1997) ....................................................................... 17 Addis Co. v. Srogi, 79 A.D.2d 856 (4th Dep’t 1980) lv denied 53 N.Y.2d 603 (1981) .................... 29 Bialystock & Bloom v. Gleason, 290 A.D.2d 607 (3d Dep’t 2002) ........................................................................ 42 Central N.Y. Oil & Gas Company, L.L.C. v. Porto Bagel, Inc., 106 A.D.3d 1152 (3d Dep’t 2013) ...................................................................... 16 Champlain Nat’l Bank v. Brignola, 249 A.D.2d 656 (3d Dep’t 1998) ........................................................................ 43 Chase Manhattan Bank v. State, 103 A.D.2d 211 (2d Dep’t 1984) ........................................................................ 42 City of Rochester v. Iman, 51 A.D.2d 651 (4th Dep’t 1976) ......................................................................... 33 Cont’l Assur. Co. and/or Moeby Realty Corp. v. Mayor of Lynbrook, 113 A.D.2d 795 (2d Dep’t 1985) appeal dismissed, 66 N.Y.2d 915 (1985) ...... 39 East Med. Ctr. L.P. v. Assessor of Town of Manlius, 16 A.D.3d 1119 (4th Dep’t 2005) ................................................................. 15, 21 FMC Corp. v. Unmack, 92 N.Y.2d 179 (1998) ........................................................................................ 15 Geffen Motors v State, 33 A.D.2d 980 (4th Dep’t 1970) ......................................................................... 25 Greater N.Y. Sav. Bank v. Comm’r of Fin., 15 A.D.3d 661 (3d Dep’t 2005) .......................................................................... 29 In re Acquisition of Real Property by County of Dutchess 186 A.D.2d 891 (3d Dep’t 1992) ........................................................................ 25 - iv - John P. Burke Apts., Inc. v. Swan, 137 A.D.2d 321 (3d Dep’t 1988) ........................................................................ 39 Johnson v. Kelly, 45 A.D.3d 687 (2d Dep’t 2007) .......................................................................... 26 Johnson v. Town of Haverstraw, 133 A.D.2d 86 (2d Dep’t 1987) .......................................................................... 17 Katz v Assessor of Mt. Kisco, 82 A.D.2d 654 (2d Dep’t 1981) .......................................................................... 42 Kurnick v. State, 54 A.D.2d 1098 (4th Dep’t 1976) ....................................................................... 30 Manno v. Fin. Adm’r of New York, 92 A.D.2d 896 (2d Dep’t 1983) .......................................................................... 23 Mulready v. Bd. of Real Estate Appraisers, 984 A.2d 1285 (Me. 2009)................................................................................. 37 Nat’l Fuel Gas Supply Corp. v. Goodremote, 13 A.D.3d 1134 (4th Dep’t 2004) ....................................................................... 43 Niagara Falls Urban Renewal Agency v 123 Falls Realty, 66 A.D.2d 1009, appeal dismissed 46 N.Y.2d 997 (1979) appeal denied 47 N.Y.2d 711 (1979) ......................................................................................... 42 Niagara Mohawk Power Corp. v. City of Cohoes Bd. of Assessors, 280 A.D.2d 724 (3d Dep’t 2001) lv denied 96 N.Y.2d 719 (2001) ................... 30 Niagara Mohawk Power Corp. v. Town of Bethlehem Assessor, 225 A.D.2d 841 (3d Dep’t 1996) ............................................................ 16, 17, 30 Niagara Mohawk Power Corp. v. Town of Tonawanda Assessor, 233 A.D.2d 920 (4th Dep’t 1996) ....................................................................... 16 Orange & Rockland Utils., Inc. v. Williams, 187 A.D.2d 595 (2d Dep’t 1992) ............................................................ 17, 27, 28 People v. First Am. Corp., 18 N.Y.3d 173 (2011) ......................................................................................... 35 - v - Pritchard v. Ontario County Indus. Dev. Agency, 248 A.D.2d 974 (4th Dep’t 1998) ....................................................................... 16 Schoeneck v. City of Syracuse, 93 A.D.2d 988 (4th Dep’t 1983) ......................................................................... 30 State v. Town of Thurman, 183 A.D.2d 264 (3d Dep’t 1992) ........................................................................ 17 Stock v. Baumgarten, 211 A.D.2d 1008 (3d Dep’t 1995) ...................................................................... 27 Tenn. Gas Pipeline Co. v. Town of Sharon Bd. of Assessors, 298 A.D.2d 758 (3d Dep’t 2002) appeal denied 99 N.Y.2d 506 (2003) ...... 19, 20 Wagman v. Bradshaw, 292 A.D.2d 84 (2d Dep’t 2002) .......................................................................... 33 STATUTES N.Y. C.P.L.R. 5601(a) (McKinney’s 1995 & Supp. 2013) ............................. 2, 3, 14 N.Y. Real Prop. Law § 339-y (McKinney’s 2006 & Supp. 2013) ............... 10, 20,21 N.Y. Real Prop. Tax Law § 581 (McKinney’s 2008 & Supp. 2013) ...................... 10 OTHER AUTHORITIES 12 C.F.R. § 34.44 (2012) ......................................................................................... 34 19 N.Y.C.R.R. § 1106.1 (2013) ........................................................................... 6, 34 22 N.Y.C.R.R. § 202.59(g) (2013) ......... 6, 15, 17, 18, 19, 20, 21, 22, 27, 28, 30, 33 Black’s Law Dictionary,(8th ed. 2004) ................................................................... 35 The Appraisal of Real Estate (13th ed. 2008) ........................... 19, 27, 38, 39, 40, 41 Uniform Standards of Professional Appraisal Practice (2012-2013ed.) ................. 34 Uniform Standards of Professional Appraisal Practice (2008-2009 ed..) ............... 34 - 1 - QUESTIONS PRESENTED 1. Where the appraisal relied upon by the petitioner in a tax certiorari proceeding fails to comply with the requirements imposed by the Uniform Rules for the New York State Trial Courts and the Uniform Standards of Professional Appraisal Practice, and particularly lacks the facts, figures, and calculations required to support the opinions expressed in it, should the trial court strike the appraisal and dismiss the petition? Respondents-Appellants submit that the answer to this question is “Yes.” 2. Where the petitioner’s appraiser fails to provide the facts, figures, and calculations required to support his conclusion as to the capitalization rate to be utilized in valuing the property at issue, should the trial court reject that conclusion? Respondents-Appellants submit that the answer to this question is also “Yes.” - 2 - JURISDICTION OF THE COURT AND PRESERVATION OF QUESTIONS PRESENTED As this Court is aware, this appeal as of right is taken pursuant to CPLR 5601(a), and arises out of tax certiorari proceedings in which petitioner challenged respondent’s assessments of certain condominium units located in the Town of Amherst, New York. The legal issues addressed at the Appellate Division, Fourth Department (in both the majority opinion and a two-Justice dissent), included whether: (a) petitioner’s evidence (and particularly its appraisal) failed to comply with the requirements of the Uniform Rules for the New York State Trial Courts and the Uniform Standards of Professional Appraisal Practice, and, therefore, was both incompetent and inadmissible as evidence of value; (b) petitioner’s evidence was legally sufficient to require a factual determination by the referee presiding over the trial as to the value of the condominium units; and (c) if so, whether petitioner’s evidence as to the capitalization rate was competent, admissible, and legally sufficient to support the trial court’s decision to adopt that capitalization rate. As this Court is also aware, petitioner previously moved to dismiss this appeal, arguing that respondent lacked the requisite jurisdictional predicate for an appeal as of right pursuant to N.Y. C.P.L.R. 5601(a) (McKinney’s 1995 & Supp. 2013). By Order dated June 6, 2013, this Court denied petitioner’s motion to dismiss, and thereby recognized that the two-Justice dissent at the Appellate - 3 - Division was “a dissent by at least two Justices on a question of law” in favor of respondent. See C.P.L.R. 5601(a). Accordingly, this Court has jurisdiction to entertain this appeal, and to review the questions presented herein, which were properly preserved for this Court’s review. See, e.g., R. 726-27, 967-68, 1107-09. PRELIMINARY STATEMENT The Uniform Rules for the New York State Trial Courts (“Uniform Rules”) and the Uniform Standards of Professional Appraisal Practice (“USPAP”) establish standards that are intended to, among other things, protect the integrity of New York’s real property tax assessment system - by ensuring that all taxpayers pay their fair share based on the value of the property they own. The Uniform Rules, in particular, serve that goal by establishing an evidentiary standard that the petitioner in a tax certiorari proceeding must meet in order to provide competent and legally sufficient evidence to rebut the presumption of validity that attaches to tax assessments in New York. That standard not only helps to ensure the integrity of tax assessments in New York, it also helps to avoid inconsistent results between taxing jurisdictions, provides an adequate record for judicial review at both the trial and appellate level, and allows the assessing jurisdiction a meaningful opportunity to evaluate a taxpayer’s claims as to the - 4 - value of their property (and to defend the assessor’s determination as to a particular property’s value if the taxing jurisdiction determines that it is appropriate to do so). In this case, as dissenting Justices Peradotto and Carni recognized, the majority decision in the Appellate Division upends that standard, replacing it with “a new, relaxed evidentiary standard in tax assessment cases based on the assumption that to do otherwise would stifle petitions challenging tax assessments.” See R. 1137-38. Respondents respectfully submit that not only is that new, relaxed evidentiary standard contrary to the language and intent of the Uniform Rules (and the previous judicial decisions interpreting those rules), it is also a threat to both the integrity of New York’s real property tax assessment system and the continued ability of the New York courts to play their essential role within that system. If appraisers in New York are now permitted to opine as to the value of properties without including the “facts, figures and calculations” which they rely upon, municipalities will be severely prejudiced in their ability to assess and, where necessary, defend their assessments - and effective judicial review of the validity of appraisers’ opinions as to value will become impossible. This Court need only look to petitioner’s appraisal here to see the type of appraisal that will become the norm if the majority’s decision in the Appellate Division is allowed to stand. That decision permitted petitioner’s appraiser, Robert Strell of MBA Consulting & Appraisal Co., to rely upon an appraisal report (the - 5 - “Strell Appraisal”) that violates the fundamental and long-standing requirements imposed by both the Uniform Rules and USPAP (as well as the previous judicial decisions interpreting those requirements). That decision also accepted the Strell Appraisal as legally sufficient evidence to rebut the presumption of validity of the assessments at issue, despite the fact that the Strell Appraisal: Was largely devoid of facts, figures, and calculations to support the great majority of the opinions contained in it; Used dissimilar “comparable” properties in his estimated rental analysis, thus artificially lowering the resulting opinion as to the value of the condominium units as a whole; Failed to explain the lumped-together downward adjustments applied to the dissimilar “comparable” properties used in its estimated rental analysis, again artificially lowering the resulting opinion as to the value of the condominium units as a whole; Failed to establish a fair market value for each of the condominium units at issue; Incorporated and adopted a capitalization rate that Mr. Strell initially attempted to pass off as a “market rate,” but then subsequently admitted was not - because: (a) it was based on only “limited historic operating expenses” regarding the four allegedly comparable properties considered; and (b) it relied upon “forecast financials” rather than current, actual income and expenses for those properties (because Mr. Strell also admitted that he did not have “certified” income and expense information available to him, despite his initial claims to the contrary); - 6 - Utilized dissimilar apartment complexes as comparables in its capitalization rate analysis (without adjusting for differences in age, size, condition, location and other obvious differences); and Violated USPAP because Mr. Strell had appeared as an advocate for petitioner before the Town’s Assessor and Board of Assessment Review (“BAR”) before authoring the appraisal upon which petitioner relied at trial. Each of these issues is discussed further below, and each provided an independent and sufficient reason to strike the Strell Appraisal. Thus, contrary to the majority’s decision at the Appellate Division, the Strell Appraisal did not comply with the requirements of § 202.59(g)(2) of the Uniform Rules and USPAP (as adopted in New York - see 19 N.Y.C.R.R. § 1106.1 (2013)), or the well-established precedent enforcing those requirements. In contrast to the majority’s decision, the dissenting Justices recognized the fatal legal and factual flaws within the Strell Appraisal, as well as the damage that will be done to New York’s real property tax assessment system if: (a) appraisers are permitted to offer opinions that lack the necessary facts, figures and calculations to support such opinions; and (b) appraisals such as the Strell Appraisal are deemed to be legally sufficient evidence to rebut the presumption of validity that attaches to an assessor’s value determination. - 7 - Because the majority at the Appellate Division either ignored or overlooked these consequences, and because the majority’s decision is contrary to the language and intent of the Uniform Rules, USPAP, and the established New York precedent interpreting both the Uniform Rules and USPAP, respondents respectfully submit that the Appellate Division’s decision should be reversed, the Strell Appraisal should be stricken, and this proceeding should be dismissed based upon petitioner’s failure to provide legally sufficient evidence to rebut the presumption of validity that attached to the assessor’s determination as to the value of the condominium units at issue. If this Court declines to grant that relief, however, respondents submit that the Appellate Division’s decision regarding the applicable capitalization rate should nevertheless be reversed, based upon the lack of competent and admissible proof to support the capitalization rate adopted by petitioner’s appraiser. In that case, this Court should modify the Order entered by the Supreme Court as suggested by the dissenting Justices at the Appellate Division - to reduce the aggregate assessment for the condominium units at issue to $5,080,000.00, and to adopt respondents’ apportionment of values among the units at issue. See R. 1139. - 8 - STATEMENT OF FACTS AND PROCEDURAL HISTORY A. 2009 Proceeding Petitioner is the Board of Managers of the French Oaks Condominiums, which are located in Amherst, New York. R. 14. The French Oaks Condominiums consist of 39 separate units, built between 2003 and 2005. R. 44-45. Each unit is a detached one story or one story with loft structure, with a basement and attached garage. See R. 124-344. Of the 39 units, only two have the same square footage - the rest vary in size between 1328 square feet and 2092 square feet. See id. Each unit is also unique in its internal finishes and build-outs. See R. 139-344, 797-803. As a result of these differences, the units were listed on the Town’s tentative assessment roll for the 2009 tax year at values ranging from $114,000.00 to $179,000.00. R. 44-45. The total assessed value of all of the units, on that tentative roll, was $5,539,00.00. R. 45. On May 18, 2009, petitioner filed a complaint with the Town of Amherst’s Board of Assessment Review (“BAR”) claiming that the Town’s assessment of the units was excessive and, based upon a preliminary appraisal by Mr. Strell, should be reduced to a total of $3,847,500.00. R. 46-49h. Mr. Strell also prepared a letter to the condominium owners, which was subsequently submitted to the BAR. R. 1058-59. According to that letter, Mr. Strell was going to perform a preliminary review, which would allow him to “determine the - 9 - strength of our case.” R. 1058 (emphasis added). Mr. Strell also promised that, at the conclusion of his analysis, he would report back to petitioner and the condominium owners, and would provide a written report regarding his conclusions. Id. Mr. Strell then promised that we would arrange an informal meeting with the Town’s representative “to present our case.” Id. (emphasis added). If unsuccessful at that level, Mr. Strell further promised that he would file a grievance complaint and attend the grievance proceeding “to present our case.” Id. (emphasis added). At that point, assuming he was still not successful, Mr. Strell promised that he would “work in concert with your attorney to negotiate a resolution of the lawsuit with the assessor’s office.” R. 1059. Finally, if such a resolution could not be attained, Mr. Strell promised that he would prepare a full narrative report for petitioner’s use in litigation. Id. The BAR reduced the total assessments on the 39 units to $5,176,000.00. See R. 14. Petitioner was not satisfied with that result, however, and commenced this proceeding pursuant to Article 7 of the Real Property Tax Law (“RPTL”) seeking a further reduction totaling $1,328,668.00 - which would have resulted in a new total assessment for all of the units of $3,487,332.00. R. 36- 37, 39-40, 49. The Town answered in due course, and denied that petitioner was entitled to the reduction sought. R. 50-51. - 10 - B. Appraisals On June 21, 2010, the Town filed its appraisal, prepared by Thomas H. Newton, with the trial court (the “Newton Appraisal”). R. 52-473. In order to prepare that appraisal, Mr. Newton inspected and photographed each of the units at issue, and included a detailed description of each unit’s unique characteristics in his report. R. 139-344. Mr. Newton’s inspection considered, among other things, the physical layout of each unit, the interior finishes, and any special features unique to each unit - as he documented in the numerous photographs contained in his appraisal. See, e.g., R. 141-45. In addition, Mr. Newton included detailed information in his report for each of the comparable rental properties that he considered in preparing his income capitalization approach to value, including information concerning the specific features and layout of each rental in that analysis, and the adjustments that he made to the per square foot rental value of those comparable rental properties. See R. 387-409. Based upon his inspection and analysis of each unit, his consideration of comparable rental properties, and in accordance with the requirements of Real Property Law § 339-y and Real Property Tax Law § 581, Mr. Newton: (a) determined a total value, for all of the units, of $5,080,000.00; and then (b) determined a value for each of the condominium units based on each unit’s unique - 11 - characteristics. See R. 55-56. In doing so, Mr. Newton acted in accordance with the requirements imposed by the RPTL, the Uniform Rules, and USPAP. On July 15, 2010, petitioner filed the Strell Appraisal. R. 474-671. The Strell Appraisal stands in stark contrast to the Newton Appraisal. The Strell Appraisal failed to include a single picture, plan, rendering, or description of the interior of any of the condominium units at issue. See R. 546-87. Instead, Mr. Strell included only “thumbnail” photographs of the exterior of some of the units, which were taken from the Town’s Comprehensive Property Information system. See, e.g., R. 552-53. The Strell Appraisal was similarly incomplete with respect to the allegedly comparable condominium rentals that Mr. Strell sought to rely upon as support for his income capitalization approach. See R. 596-602. With respect to both of the condominium properties that he included in his report, for example, Mr. Strell failed to include information concerning the specific layouts, finishes, or other interior features of the units that he chose to include. See id. Nor did Mr. Strell provide any “facts, figures or calculations” to support the adjustments that he made to the allegedly comparable condominium and apartment rentals included in his report. See, e.g., R. 597, 604-23. With respect to the Castlebrook Condominium comparables that he relied upon, for example, he merely stated that: “I have adjusted these rentals to account for the prestigious location and rent concessions in the market place. The location - 12 - adjustment is estimated to be -5% and the rent concession a -10%. The total adjustment is -5%.” R. 596. Mr. Strell did not otherwise explain these adjustments, or attempt to justify them - even though both his appraisal and the record were devoid of any proof that rental concessions were utilized to rent such units or, if they were, what those concessions actually might have been. See R. 596. Mr. Strell also “reviewed” a number of other supposed “rental comparables,” which consisted of dissimilar apartment complexes generally located within the Town of Amherst. See R. 603-33. Mr. Strell’s “lump sum” adjustments with respect to the per square foot rental values of these properties, like his adjustments to the allegedly comparable condominiums that he considered, do not include facts, figures, or calculations to support his adjustments. See R. 596, 622. For some of these properties Mr. Strell provided no explanation whatsoever for his adjustments, for others he provided only a general description of what the “lump sum” adjustment purportedly included. See, e.g., R. 604, 612. Compounding that problem, Mr. Strell adopted a comparable market rent based upon these allegedly comparable rental properties, without explanation, and also adopted specific estimated market rents for each of the subject condominium units at issue, again without explanation. See R. 642, 653-54. - 13 - C. 2010 Proceeding On July 22, 2010, petitioner filed another notice of petition and petition challenging the 2010 tax assessment on the French Oaks Condominiums. R. 672-89. The Town once again answered, and again denied that petitioner was entitled to the reduction sought by the petition. R. 690-691. The parties subsequently agreed that the result of the trial of the 2009 proceeding would also establish the assessment for purposes of the 2010 proceeding. D. Trial and Decision The trial of this proceeding took place on November 30 and December 1, 2010, before Anne S. Rutland, Esq., a court attorney and appointed referee. R. 722-1106. After petitioner presented its evidence, the Town moved to dismiss the petition - based upon both the fundamental flaws in the Strell Appraisal and petitioner’s resulting failure to meet its initial burden of showing overvaluation by substantial evidence. See R. 967-68. In accordance with the referee’s instructions, the Town further briefed its motion to dismiss in its post-trial submission to the referee. R. 1107-09. On April 28, 2011, the referee issued a Memorandum Decision, denying the Town’s motion to dismiss, but then adopting every part of the Newton - 14 - Appraisal - except for the critically important capitalization rate to be applied under the capitalization of income approach to value. See R. 10-29. The referee then concluded that, applying Mr. Strell’s capitalization rate, the total value of the condominium units, as of the relevant taxable status date, was $4,353,030.00. R. 29. (Had the referee applied Mr. Newton’s capitalization rate, and given that the referee otherwise adopted all of Mr. Newton’s other conclusions as to value, the total value would have been $5,080,000.00. R. 25). On June 6, 2011, Supreme Court, Erie County (Hon. John A. Michalek, J.S.C.) entered an Order adopting the referee’s Memorandum Decision. See R. 7-9. E. The Town’s Appeal On June 13, 2011, respondents appealed from Supreme Court’s Order. See R. 3-5. By Memorandum and Order entered February 1, 2013, the Appellate Division, Fourth Department, affirmed Supreme Court’s Order, without costs, but with two justices dissenting on a question of law in favor of respondents. See R. 1131-40. By Notice of Appeal, filed in the Erie County Clerk’s Office on February 28, 2013, respondents appealed as of right to this Court, pursuant to C.P.L.R. 5601(a), from the Order of the Appellate Division, Fourth Department. See R. 1126-27. - 15 - ARGUMENT POINT I THE STRELL APPRAISAL SHOULD HAVE BEEN STRICKEN AND THE PETITION DISMISSED As this Court and the Fourth Department have repeatedly recognized, an assessment is presumed to be valid, and it is petitioner’s initial burden to show by substantial evidence that the assessment is incorrect. See, e.g., FMC Corp. v. Unmack, 92 N.Y.2d 179, 187 (1998); East Med. Ctr. L.P. v. Assessor of Manlius, 16 A.D.3d 1119, 1120 (4th Dep’t 2005). Only where the petitioner meets that initial burden of proof is the trial court required to “weigh the entire record, including evidence of claimed deficiencies in the assessment, to determine whether petitioner has established by a preponderance of the evidence its property has been overvalued.” See FMC, 92 N.Y.2d at 188. Here, petitioner could not, and did not, meet its initial burden. Instead, the Strell Appraisal, and Mr. Strell’s testimony, were fatally flawed, and lacked the required “facts, figures, and calculations” necessary to support Mr. Strell’s opinions. Consequently, petitioner’s evidence was neither competent nor admissible evidence of value - nor was it legally sufficient to overcome the presumption of validity to which the Town’s assessment was entitled. The petition should, therefore, have been dismissed. - 16 - A. The Strell Appraisal Failed to Comply With The Uniform Rules Section 202.59(g)(2) of the Uniform Rules mandates that the appraisal report relied upon by a petitioner in a tax certiorari proceeding “shall contain a statement of the method of appraisal relied on and the conclusions as to value reached by the expert, together with the facts, figures and calculations by which the conclusions were reached.” (emphasis added). If the appraisal relies upon “sales, leases or other transactions involving comparable properties,” the report also “shall contain a clear and concise statement of every fact that a party seeks to prove in relation to those comparable properties.” (emphasis added). If an appraisal report fails to include such “facts, figures and calculations,” it violates the requirements of Section 202.59(g)(2) of the Uniform Rules and should be stricken. See Pritchard v. Ontario County Indus. Dev. Agency, 248 A.D.2d 974 (4th Dep’t 1998); Niagara Mohawk Power Corp. v. Town of Tonawanda Assessor, 233 A.D.2d 920 (4th Dep’t 1996); see also Central N.Y. Oil & Gas Co., LLC v. Porto Bagel, Inc., 106 A.D.3d 1152 (3d Dep’t 2013) (holding that petitioner’s appraisal should have been stricken because it lacked the supporting facts, figures and calculations by which the conclusions contained therein were reached); Niagara Mohawk Power Corp. v. Town of Bethlehem Assessor, 225 A.D.2d 841, 846 (3d Dep’t 1996) (holding that petitioner’s appraisal lacked supporting facts, figures and conclusions and was, therefore, legally - 17 - insufficient to overcome the presumption of validity); Orange & Rockland Utils. v. Williams, 187 A.D.2d 595, 596 (2d Dep’t 1992) (holding that an appraisal that lacks ascertainable or verifiable data to support the appraiser’s conclusions of value violates the requirements of § 202.59(g)(2), and should be stricken); State v. Town of Thurman, 183 A.D.2d 264, 266 (3d Dep’t 1992) (same). Such appraisals are entitled to no consideration, particularly where they also contain inconsistent and unexplained conclusions which are unsupported by facts, figures or calculations. See 50540 Realty, Inc. v. Tax Comm. of New York, 136 A.D.2d 699, 700 (2d Dep’t 1997); see also Johnson v. Town of Haverstraw, 133 A.D.2d 86, 87 (2d Dep’t 1987) (holding that appraiser’s failure to specify and quantify adjustments “vitiated the probative value of the appraisal,” and required dismissal of the petitions). Since the appraisal forms the foundation for the appraiser’s opinion, striking the appraisal precludes the petitioner from presenting legally sufficient evidence to rebut the presumption of validity that attaches to the tax assessment, and the petition should then be dismissed. See Niagara Mohawk Power Corp. v. Town of Bethlehem Assessor, 225 A.D.2d at 846, supra; Johnson v. Town of Haverstraw, 133 A.D.2d at 87, supra. Unfortunately, the Courts below ignored these well-established precedents and, as described by dissenting Justices Peradotto and Carni, instead took “a plain failure of proof and . . . extrapolate[d] from it a new, relaxed - 18 - evidentiary standard on tax assessment cases based on the assumption that to do otherwise would stifle petitions challenging tax assessments.” See R. 1137-38. By doing so, the majority decision in the Appellate Division opens the system to abuse, and to unfair and unequal results, by permitting biased, result-driven opinion testimony that is not susceptible to meaningful cross-examination or judicial review, and which clearly does not satisfy the requirements of Section 202.59(g) of the Uniform Rules or the requirements of USPAP. The most striking flaws in the Strell Appraisal are detailed and discussed separately below. 1. The Strell Appraisal Lacked Essential Facts Concerning Each Condominium Unit at Issue The Strell Appraisal failed to provide even the most basic data concerning each condominium unit, which is required by both § 202.59(g)(2) of the Uniform Rules and USPAP. Incredibly, the Strell Appraisal fails to include a single picture, plan, rendering, or description of the interior of any of the subject condominiums units as they existed on the valuation date. Instead, Mr. Strell merely included a few “thumbnail” pictures of the exterior of some units, which he obtained from the Town’s Comprehensive Property Information system. See R. 475-477, 549-552, 554-586. In stark contrast, the proof submitted by the Town, through Mr. Newton, showed that each unit was finished differently, and often built out differently from the original design. See R. 139-344, 797-803. - 19 - The lack of even the most basic facts concerning the condominium units at issue, standing alone, renders the Strell Appraisal fatally flawed, since the object of the real property valuation that he performed, and the issue raised by the petition, was the value of each condominium unit. R. 44-45, 680-681. As The Appraisal of Real Estate - often referred to as the “bible” by appraisers - makes abundantly clear, an appraiser is required to obtain specific data about the subject property to be appraised in order to make specific comparisons, analyze the property’s particular features, and develop an opinion of value. See The Appraisal of Real Estate (13th ed. 2008) at 155 (appraisals should contain specific data that includes details of the property to be appraised including the physical condition of each unit). This requirement is echoed in Section 202.59(g)(2) of the Uniform Rules, requiring that the appraiser obtain and include in his or her report the “facts, figures and calculations” necessary to support the appraiser’s conclusion. The Strell Appraisal contains far fewer details concerning the properties being valued than other appraisals that have been rejected by New York courts as insufficient to meet petitioner’s initial burden of proof in a tax certiorari proceeding. For example, in Tenn. Gas Pipeline Co. v. Town of Sharon Bd. of Assessors, 298 A.D.2d 758, 760 (3d Dep’t 2002), the appraisal at issue included significant information regarding the construction cost of a natural gas pipeline that was taken from a national source (Marshall & Swift), and from other New York - 20 - pipeline construction projects. Nevertheless, because the appraiser did not discuss the pressure of the pipeline being valued (high, medium or low), was not familiar with the difference “between ‘low,’ ‘average’ and ‘good’ construction conditions,” and did not document “many of the decisions underlying his calculations . . . as required by 22 NYCRR 202.59 (g)(2),” the Court found that the appraisal proof at issue was insufficient to meet petitioner’s initial burden to show that its pipeline was overvalued. Id. How can the same not be true here, where even the most basic information about what is being valued is missing from the Strell Appraisal? 2. The Strell Appraisal Lacked Facts and Figures Concerning the Allegedly Comparable Properties Used to Estimate Rental Income In addition to lacking basic facts and figures concerning the condominium units that were supposedly being valued, the Strell Appraisal also lacks basic facts and figures concerning the allegedly comparable properties that Mr. Strell claims to have considered in his income approach to valuation. Because the properties at issue are condominium units, both appraisers in this proceeding were required to comply with Real Property Law § 339-y, which provides that: (1)(a) each unit and its common interest, not including any personal property, shall be deemed to be a parcel and shall be subject to separate assessment and taxation by each assessing unit, school district, special district, county or other taxing unit, for all types of taxes - 21 - authorized by law . . . . Neither the building, the property nor any of the common elements shall be deemed to be a parcel. (b) In no event shall the aggregate of the assessment of the units plus their common interests exceed the total valuation of the property were the property assessed as a parcel. N.Y. Real Prop. Law § 339-y (1)(a)-(b) (McKinney 2006 & Supp. 2013). As a consequence of these provisions, the rule in New York is that “[e]ach unit must be valued for assessment purposes as if it were rental property.” See East Med. Ctr., L.P. v. Assessor of Manlius, 16 A.D.3d 1119, 1120 (4th Dep’t 2005). By listing 67 rentals in his appraisal report, Mr. Strell would have the reader believe that he did an exhaustive review of these supposedly comparable rentals. R. 595. However, he did nothing of the sort. Instead, the Strell Appraisal contains no analysis to support the opinions drawn from the included list, and the list itself violates § 202.59(g)(2) of the Uniform Rules because it fails to include “a clear and concise statement of every fact that a party will seek to prove in relation to [the] comparable properties.” For example, Mr. Strell purports to analyze an allegedly comparable rental at the Castlebrook Condominium. See R. 596. However, the Strell Appraisal contains almost no facts, figures or calculations to support Mr. Strell’s opinions based upon that allegedly comparable rental, and no explanation of the thought process Mr. Strell followed from the scant information provided - 22 - concerning that rental to reach his resulting opinions. Indeed, the Strell Appraisal fails to provide even the following basic information about the Castlebrook rental: a) the layout of the apartment; b) the finishes in the apartment; c) the contact information for the landlord or tenant; d) the written lease, lease term, or specific lease language; e) any photos of the interior of the apartment (and only the most general photo of the outside of the complex, in which it is impossible to identify the unit under consideration); f) any specific information about alleged rent concessions; g) the number of bedrooms and bathrooms; h) whether appliances or other amenities, such as a fireplace, dishwasher, or washer and dryer - all common to the subject units, are included; and i) whether a garage is included in the rental price. See R. 596. The reader is certainly not given a “clear and concise statement of every fact” petitioner sought to prove in relation to this alleged comparable, as is required by § 202.59(g) of the Uniform Rules. Without that relevant data there is no way for the Court to determine whether Mr. Strell’s conclusions are realistic, helpful, or supported, or for opposing counsel to cross-examine him effectively - other than by highlighting the absence of such required information (which cross- examining counsel did repeatedly during the trial of this proceeding). R. 844, 848, 850-851, 910-911, 914-916, 919-920, 928-929, 947-948, 950. - 23 - 3. The Strell Appraisal Failed To Make Necessary Adjustments Concerning the Allegedly Comparable Properties Used to Estimate Rental Income Even in the absence of the required facts, figures and calculations concerning the allegedly comparable properties that Mr. Strell relied upon, it is obvious that there are substantial differences between the subject units and the Castlebrook rental, for which Mr. Strell made no adjustments: a) the subject units are free standing with land between them (patio homes) - while the Castlebrook units are attached to each other; b) the subjects all have basements - Castlebrook does not; c) the subjects were built between approximately 2002 and 2006 - but there is no information about when the obviously older Castlebrook units were built; d) the subjects all have attached two car garages - while it is not clear that garages are available at Castlebrook; and e) the subjects all have designer kitchens, appliances, fireplaces, and 1½ - 2½ baths - while Castlebrook does not appear to have any of these amenities. See R. 124-344. Given these considerable differences, sound appraisal practice dictated that, at a minimum, detailed adjustments be made to allow the appraiser to utilize the allegedly comparable rentals to arrive at a fair market rental value for the subject properties. See, generally, Manno v. Fin. Adm’r of New York, 92 A.D.2d 896 (2d Dep’t 1983). Mr. Strell, however, did not provide the facts and figures necessary to properly evaluate these differences, did not make the required - 24 - adjustments, and otherwise failed to follow sound appraisal practice in his estimated rental analysis. Notably, the most extensive discussion of any adjustment made by Mr. Strell is for the Castlebrook Condominium. R. 596. However, that discussion merely illustrates the utter lack of any factual support or reasoned explanation for the adjustments that he made. Mr. Strell wrote “I have adjusted these rentals to account for the prestigious location and rent concessions in the market place. The location adjustment is estimated to be -5% and the rent concession a -10%. The total adjustment is -15%.” R. 596. Unbelievably, however, Mr. Strell failed to provide any “facts, figures or calculations” to explain how he arrived at these deductions, let alone attempt to justify them. While the location may be near a private country club, there was no proof of any special privileges which accompany living there. R. 596. Moreover, there was no proof that rental concessions were utilized to rent the allegedly comparable condominium units, let alone what those concessions (if any) might have been, or why a downward 10% adjustment was appropriate. Id. The dissenting Justices properly criticized Mr. Strell’s patently deficient approach: To the extent that petitioner’s appraisal contains “lump- sum” adjustments without breaking those adjustments down into specific categories and quantities, we conclude that such adjustments are improper because they do not - 25 - afford an adequate basis for our review (Matter of County of Dutchess [285 Mill St.], 186 AD2d 891, 892; see also Geffen Motors v State of New York, 33 AD2d 980, 980). See R. 1139. Mr. Strell’s “explanation” of any adjustments that he made to the other allegedly comparable rentals is virtually non-existent. One need only look at his “analysis” of the Oakbrook Condominium rentals to confirm this fatal flaw, as well as Mr. Strell’s failure to provide the required “facts, figures and calculations” to support his opinions. R. 597. Mr. Strell made adjustments of +15% and +10% to the two Oakbrook Condominium rentals that he considered, but failed to explain why or how he determined those amounts, or even why the adjustments were being made. See id. The same is true of the adjustments that Mr. Strell purported to make to the other allegedly comparable rentals at Autumn Creek Apartments, Boulevard Towers Apartments, Windsong Place Apartments, Dockside Village, Renaissance Place Apartments, Country Club Manor Apartments, and Dannybrook Apartments. In each instance, Mr. Strell lumped his purported adjustments together, without itemizing them, and without providing supporting facts, figures or calculations to explain why the adjustments were being made. See R. 604-623. - 26 - 4. The Strell Appraisal Lacks Facts, Figures, and Calculations Concerning the Per Square Foot Values That It Adopts A related, and similarly fatal flaw exists with respect to the per square foot rental values adopted by Mr. Strell. After applying his “lump sum” adjustments to each allegedly comparable rental, Mr. Strell identifies a range of allegedly comparable rental values from $0.64 to $1.08 per square foot. See R. 596, 622. However, he then adopts a range of $0.80 to $0.90 per square foot as comparable market rent, without any discussion, explanation or analysis whatsoever. See R. 642. How is the Court or reader supposed to understand his conclusions, or opposing counsel prepare a proper cross-examination (other than to highlight the missing data), when there is no explanation whatsoever provided for this critical decision? Even more incredibly, Mr. Strell then assigns each subject condominium unit being valued a specific per square foot rental value, ranging from $0.80 to $0.90, and applies that value to calculate an annual estimated market rent for each unit - again without discussion, explanation or analysis of how he arrived at those amounts. See R. 653-654. This is precisely the type of unsupported and conclusory opinion that the Uniform Rules were designed to prevent, and which New York’s courts have consistently found insufficient to overcome the presumption of validity that attaches to tax assessments in this state. See, e.g., Johnson v. Kelly, 45 A.D.3d 687 (2d Dep’t 2007) (striking petitioner’s - 27 - appraisal and dismissing the petition because petitioner’s appraisal omitted supporting facts, figures, and calculations). 5. The Strell Appraisal Failed to Establish Fair Market Value for Each of the Condominium Units Mr. Strell also did not individually value the condominium units at issue. As The Appraisal of Real Estate explains, “individual [condominium] units are not valued by appraising the entirety and then allocating the total value to individual units.” See The Appraisal of Real Estate at 639. Instead, the value assigned to each unit must be based upon the particular characteristics of each unit under consideration, and New York law recognizes that the failure to individually appraise each parcel at issue renders the appraisal report inadmissible. See Stock v. Baumgarten, 211 A.D.2d 1008, 1009 (3d Dep’t 1995) (holding that “22 NYCRR 202.59 (g)(3) requires separate appraisal reports for each parcel appraised”). In Orange & Rockland Utils. v. Williams, for example, the petitioner’s appraiser failed to identify the tax plate numbers for the parcels described in his report. See 187 A.D.2d 595, 596 (2d Dep’t 1992). The Appellate Division noted that, at trial, it was “extremely difficult, if not impossible, to locate and determine how the figures reflected in the report were arrived at.” Id. During cross-examination, petitioner’s appraiser conceded that some plates representing property owned by petitioner, but not part of the petitions, were included in the - 28 - appraisal, which would change the final valuation conclusion. Id. In addition, the Court underscored that some pages were missing from the appraisal report, and that discrepancies existed between what was filed with the Court, exchanged with counsel, and used by the appraiser. Id. The Court struck petitioner’s appraisal based on these numerous violations of 22 N.Y.C.R.R. § 202.59(g)(2), and the appraiser’s failure to sufficiently detail the facts, figures and calculations that resulted in the value conclusions that he reached. Id. Here, the Strell Appraisal’s Table of Contents suggests that Mr. Strell performed an “allocation of value to the individual units.” See R. 481. Mr. Strell presumably recognized that it was important to make such an allocation, in order to allow the trial court to examine and review his conclusions as to the value of each of the condominium units at issue. That was, after all, the purpose of the appraisal, and the issue ultimately under consideration. However, when the reader turns to the page of the Strell Appraisal that is supposed to set forth that allocation, the reader instead finds only a continuation of the so-called Executive Summary of Facts and Conclusions. See R. 488. Only after Mr. Strell was pressed about this issue on cross-examination did he reluctantly admit that his appraisal did not, in fact, contain an allocation of value for any of the individual condominium units. See R. 867-868. - 29 - That Mr. Strell so strongly resisted admitting that his report lacked such an allocation speaks volumes about its importance, and both the competency and admissibility of an appraisal which lacks it. R. 871-872. It is respectfully submitted that the trial court and the majority at the Appellate Division both failed to recognize the significance of this missing proof, and that it was not simply a ministerial mater to allocate a value to each of the 36 condominium units under review - especially since their finished features varied greatly. (As is readily apparent from even a casual perusal of the Newton Appraisal. R. 124-344). 6. The Strell Appraisal Lacked the Facts, Figures and Calculations Required to Support Its Capitalization Rate Conclusion Finally, the Strell Appraisal was also fatally flawed because it lacked the facts, figures and calculations required to support the capitalization rate analysis and conclusion contained therein. This lack of supporting facts, figures, and calculations formed the principal focus of the dissenting Justices’ criticism of the Strell Appraisal. As the dissenting Justices explained: The legal flaw underlying the capitalization rate analysis of petitioner’s appraiser is that he relied on his “personal exposure” to at least three of the four comparable properties to justify the financial figures that he used to calculate his capitalization rate. Although we agree with the majority that “opinion evidence of appraisers is competent evidence of [a capitalization] rate” (Matter of Greater N.Y. Sav. Bank v. Commissioner of Fin., 15 - 30 - AD3d 661, 661; see Matter of Addis Co. v. Srogi, 79 AD2d 856, 857, lv denied 53 NY2d 603), we conclude that such opinion evidence must still be supported “by factual data supporting such rate” (Kurnick v. State of New York, 54 AD2d 1098, 1098). An appraiser cannot simply list financial figures of comparable properties in his or her appraisal report that are derived from alleged personal knowledge; he or she must subsequently “prove” those figures to be facts at trial (22 NYCRR 202.59 [g] [2]; see Matter of Niagara Mohawk Power Corp. v. City of Cohoes Bd. of Assessors, 280 AD2d 724, 727, lv denied 96 NY2d 719). Petitioner’s appraiser, however, failed to offer any factual support for the great majority of his figures. Thus, there was no way for respondents’ counsel to conduct an adequate cross- examination of petitioner’s appraiser with respect to those figures (see Matter of Niagara Mohawk Power Corp. v. Town of Bethlehem Assessor, 225 AD2d 841, 843). In the absence of any documentary or tangible evidence, respondents’ counsel could not determine whether petitioner’s appraiser accurately reported the financial figures of the allegedly comparable properties, nor can we make such a determination. R. 1137. Thus, as the dissenting Justices recognized, the income capitalization analysis in the Strell Appraisal did not comply with the requirements of the Uniform Rules the Appraisal and should have been stricken. See, e.g., Schoeneck v. City of Syracuse, 93 A.D.2d 988, 988 (4th Dep’t 1983) (“[t]he determination concerning the capitalization rate did not comply with the statute as it did not state ‘the essential facts’ upon which the conclusion was founded.”). While there are numerous flaws with the income capitalization analysis that Mr. Strell relied upon, - 31 - the initial and most serious problem with the Strell Appraisal is that it lacked the requisite evidentiary support to make that analysis admissible in the first instance. Mr. Strell began his capitalization rate analysis by selecting four outdated, dissimilar apartment complexes for which he did not have verifiable data on “income, expenses, financing terms and marketing conditions at the time of sale.” See R. 633-39, 932-33, 944-45. Mr. Strell initially claimed to have calculated a “market derived” capitalization rate based upon actual income and expense information for those properties, which he claimed came from “certified sources.” R. 759-62. He did not, however, include the underlying facts and figures in his appraisal - and cross-examination revealed the reason for that omission. On cross-examination, Mr. Strell admitted that he had only “limited historic operating expenses” regarding the four allegedly comparable properties that he relied upon, that he did not have “certified information,” and that the information that he relied upon consisted of “forecast financials” rather than current, actual income and expense information. See R. 936-38. Not only did Mr. Strell fail to include the necessary facts and figures to support his capitalization rate analysis in his appraisal, he failed to obtain that information in the first place. Tellingly, there were only two pieces of paper in Mr. Strell’s file (R. 1073, 1076) that allegedly supported the “forecast financials” for the four properties that he relied upon. See R. 934-35, 940-41. The information in - 32 - those two pieces of paper - marked as Exhibits O and Q at trial - pertained to only two of the four properties, and was otherwise woefully inadequate to support his analysis. Id. The first piece of paper, concerning a property known as Hidden Village, contained virtually no specific expense information concerning that property, and Mr. Strell eventually admitted that “virtually no expense information” was provided to him for that property. See R. 937, 1073. He also eventually admitted that he did not state in his appraisal that he obtained expense information from the owner of Hidden Village, and that the information set forth in his appraisal report was only “forecast” information. See R. 938, 946-48. The second piece of paper, concerning a property known as Stoney Brook, provided only limited supporting data in the form of a profit and loss statement. R. 1076. Mr. Strell, however, failed to utilize even that limited information, instead relying in his appraisal report upon “forecast financials” for Stoney Brook. Cf. R. 1076 to R. 638. When cross-examined concerning that decision, Mr. Strell testified that he actually utilized information for Stoney Brook dated July 25, 2003, which was neither included in his report nor a part of his file. R. 107. Mr. Strell’s failure to obtain the necessary facts and figures to support his capitalization rate analysis, in the first instance, and his failure to include the - 33 - necessary facts and figures in his report to support that analysis, in the second, are both fatal flaws. As the dissenting Justices at the Appellate Division aptly stated: Appraisal is not a novel or emerging profession; its methodologies are not mysterious either in general or to the Court. Countless other cases have come before this Court in which conflicting expert appraisers have had no trouble collecting the data and documents necessary to establish an evidentiary foundation for their opinions with respect to a capitalization rate, and we do not see anything remarkable here to excuse petitioner’s appraiser from that task. Moreover, even if extenuating circumstances were present in this case rendering it difficult for an appraiser to develop an evidentiary foundation for an opinion, that fact would not cure the defect in petitioner’s appraisal (see Matter of City of Rochester v. Iman, 51 AD2d 651, 652). Above all, we see no occasion here to take a plain failure of proof and to extrapolate from it a new, relaxed evidentiary standard in tax assessment cases based on the assumption that to do otherwise would stifle petitions challenging tax assessments. Rules of evidentiary foundation are restrictive, and intentionally so (see generally Wagman v. Bradshaw, 292 AD2d 84, 91). R. 1137-38. As the dissenting Justices also correctly recognized, without the required supporting facts and figures, and the supporting documents containing them, Mr. Strell’s “unsupported financial figures” were “simply hearsay,” and did not “become admissible upon his bare assertion that he saw them at some point in the past.” See R. 1138. Accordingly, because the Strell Appraisal specifically failed to comply with the requirements of § 202.59(g)(2) as to the capitalization rate - 34 - analysis contained therein, it should have been stricken. To the extent it was not, however, the capitalization rate conclusion contained therein should have been given no weight by either the trial court or the Appellate Division, given both the lack of competent and admissible evidence to support that conclusion and the remaining flaws in Mr. Strell’s capitalization rate analysis, which are discussed further in Point II, below. B. Mr. Strell Violated USPAP In addition to the list of fatal flaws identified above, the Strell Appraisal should also have been stricken for another, independent reason - Mr. Strell’s violated USPAP by becoming an advocate for a property tax reduction on behalf of petitioner before the Town’s Assessor and BAR. USPAP prohibits such advocacy by appraisers. See USPAP Ethics Rule, in Uniform Standards of Professional Appraisal Practice (2012-13 ed.), at U- 7 (an appraiser “must not advocate the cause or interest of any party or issue.”) attached as Exhibit A. This is because “advocating the cause or interest of any party or issue contradicts the requirement for independence” and, thus, “advocacy [in appraisal practice] remains unacceptable.” See Uniform Standards of Profession Appraisal Practice (2008-2009 ed.), at U-v, attached as Exhibit B. - 35 - This Court recently found that USPAP’s requirements are incorporated into both federal and New York law, and that USPAP requires appraisers to “perform assignments with impartiality, objectivity, and independence, and without accommodation of personal interests.” See People v. First Am. Corp., 18 N.Y.3d 173, 176 (2011); see also 12 C.F.R. § 34.44 (2012) and 19 N.Y.C.R.R. § 1106.1(a) (2013) (“[e]very appraisal assignment shall be conducted and communicated in accordance with…the following provisions and standards set forth in…[USPAP]”). Black’s Law Dictionary defines an advocate as “[a] person who assists, defends, pleads, or prosecutes for another.” Black’s Law Dictionary at p. 55 (8th ed. 2004). Clearly, that is what Mr. Strell did here, and it is precisely the type of appraiser advocacy that USPAP prohibits. See Exhibit A. As noted above, Mr. Strell’s involvement in this proceeding was preceded by a letter that he sent to the individual condominium owners, informing them that he was going to perform a preliminary review that would allow him to determine the strength of “our case.” See R. 1058-1059 (emphasis added). Mr. Strell promised that, once he completed his analysis, he would report back to petitioner and the condominium owners, and would provide a written report regarding his conclusions. Id. Mr. Strell then promised that we would arrange an informal meeting with the Town’s representative “to present our case” - thus - 36 - advocating for petitioner. Id. (emphasis added). If unsuccessful at that level, Mr. Strell further promised that he would file a grievance complaint and attend the grievance proceeding “to present our case” - again advocating for petitioner. Id. (emphasis added). At that point, assuming he was still not successful, Mr. Strell promised that he would “work in concert with your attorney to negotiate a resolution of the lawsuit with the assessor’s office.” Id. Finally, if such a resolution could not be attained, Mr. Strell promised that he would prepare a full narrative report for petitioner’s use in litigation. Id. In spite of his previous advocacy on behalf of petitioner, Mr. Strell nevertheless stated in his report that it was “intended to comply with the reporting requirements set forth under the Standards Rules of the Uniform Standards of Professional Appraisal Practice for a Self-Contained Appraisal Report.” See R. 479 (emphasis added). In his “certificate of appraisal,” Mr. Strell also certified that his “analyses, opinions and conclusions were developed, and in his report have been prepared, in conformity with the requirements of the Code of Professional Ethics and Standards of Professional Appraisal Practice, which include the Uniform Standards of Professional Appraisal Practice.” R. 480 (emphasis in the original). In spite of those representations, Mr. Strell had already committed himself as an advocate on behalf of petitioner before both the Town’s assessor and - 37 - its BAR. As a result, his attempt to subsequently present himself as an unbiased appraiser, and to prepare an appraisal on that basis, violated USPAP. His appraisal should have been stricken for this reason alone. In Mulready v. Bd. of Real Estate Appraisers, 984 A.2d 1285, 1288- 1289 (Me. 2009), for example, the Supreme Judicial Court of Maine affirmed a decision of the Board of Real Estate Appraisers finding that an appraiser violated USPAP Ethics Rule U-7 because the appraiser had taken on a “role as a consultant - ‘advocate’” and then had purported to act as “an ‘unbiased’ appraiser.” The Court cited the USPAP Ethics Rule and noted that “[a]n appraiser may be an advocate only in support of his or her assignment results. Advocacy in any other form in appraisal practice is a violation of the Ethics Rule.” Id. at 1290. Accordingly, for the same reasons cited by the Court in Mulready, the Strell Appraisal should have been stricken, and the petition should have been dismissed. POINT II MR. STRELL’S CAPITALIZATION RATE CALCULATION WAS FATALLY FLAWED, AND OTHERWISE ENTITLED TO NO WEIGHT As already discussed above, the Strell Appraisal lacked the necessary facts and figures required to support the capitalization rate analysis contained therein. See Point I.A.6, supra. Thus, as the dissenting Justices at the Appellate - 38 - Division recognized, the Strell Appraisal was fatally flawed, and there was no evidentiary foundation to support the admission of its capitalization rate analysis, or the resulting opinion as to the applicable capitalization rate, into evidence. See R. 1137-38. Even if this Court were to deem those flaws non-fatal, however, Mr. Strell’s capitalization rate analysis, and his resulting opinion as to the applicable capitalization rate, should have been given no weight by either the trial court or the Appellate Division. The dissenting Justices at the Appellate Division recognized that Mr. Strell’s capitalization rate analysis was both “legally and factually flawed, and each flaw is fatal to petitioner’s case.” See R. 1137. In addition, however, Mr. Strell’s conclusion concerning the applicable capitalization rate was entitled to no weight because he relied upon dissimilar properties as alleged comparables in his capitalization rate analysis, failed to make necessary adjustments to his alleged comparables, and ignored relevant data that was contrary to his (apparently foregone) conclusion as to the applicable capitalization rate. The Appraisal of Real Estate (13th Ed. 2008) clearly and concisely outlines the permissible method of calculating a market-derived capitalization rate: Deriving capitalization rates from comparable sales is the preferred technique when sufficient data on sales of similar, competitive properties is available. Data on each property’s sale price, income, expenses, financing terms, and market conditions at the time of sale is needed. In addition, the appraiser must make certain that the net - 39 - operating income of each comparable property is calculated and estimated in the same way that the net operating income of the subject property is estimated. See The Appraisal of Real Estate at 501; see also John P. Burke Apts., Inc. v. Swan, 137 A.D.2d 321, 325-26 (3d Dep’t 1988); Cont’l Assur. Co. and/or Moeby Realty Corp. v. Mayor of Lynbrook, 113 A.D.2d 795, 799 (2d Dep’t 1985), appeal dismissed, 66 N.Y.2d 915 (1985). Mr. Strell did not follow this method. Instead of deriving a capitalization rate by examining “similar, competitive properties,” Mr. Strell chose four outdated apartment complexes which did not in any way resemble the subject condominiums - including their age, appearance, amenities, size, location, and utility. See R. 932-933; 944-945. He then failed to: (a) obtain verifiable data on “income, expenses, financing terms, and market conditions at the time of sale”; and (b) “make certain that the net operating income of each comparable property is calculated and estimated in the same way that the net operating income of the subject property is estimated.” See The Appraisal of Real Estate at 501. How could he when he did not have current, detailed expense information about the four apartment complexes? See, generally, R. 635-639, 936-938, 940-942, 946-948; see also Point I.A.6, supra. This flaw is compounded by the fact that Mr. Strell utilized properties in his capitalization rate analysis that were not remotely similar to the subject condominiums. He chose multi-unit apartment complexes, built in 1959, 1969, - 40 - and 1978, with average unit sizes of less than 1,000 square feet - compared to the relatively new subject units (built between 2002 and 2006), all of which exceeded 1,500 square feet. See R. 636-639. Tellingly, there were no pictures of the allegedly comparable apartment complexes (interior or exterior), although Mr. Strell noted that they were all older, smaller, in a different geographical area, and in average condition compared to the excellent condition of the subject units. See id. Additionally, the four allegedly comparable sales of these apartments that Mr. Strell relied upon occurred in 2003 and 2004, while Mr. Strell was purportedly determining the value of the subject units as of July 1, 2008. See R. 478-479. Despite the lack of any real description of the four allegedly comparable apartment complexes, it was clear they were not remotely similar to the condominium units at issue, which were stand-alone, new builds, with two car attached garages, basements, multiple bathrooms, fireplaces, rear decks, modern amenities, and space between the units. See R. 636-639. Incredibly, Mr. Strell failed to make any adjustments to attempt to account for these obvious and admitted dissimilarities between the four allegedly comparable apartment buildings and the subject condominiums (R. 633-639) - despite the clear requirement that such adjustments must be made to account for significant differences in age, size, sale dates, and market conditions. See The Appraisal of Real Estate at 501-502. In fact, Mr. Strell did not make a single - 41 - adjustment in his capitalization rate analysis. See R. 634-639. Mr. Strell attempted to excuse his failure to so by testifying that “[y]ou don’t want to adjust things to give you miscalculations of the cap rates.” See R. 762. Mr. Strell had it exactly backwards - by failing to make necessary adjustments he created a meaningless capitalization rate. See The Appraisal of Real Estate at 501-02. It is also revealing that Mr. Strell ignored the fact that three of the four allegedly comparable apartment complexes that he relied upon were sold again after the sales that he utilized in his report. See R. 1069-1072, 1077-1079, 1082- 1086. All of the subsequent sales were closer in time to the 2008 valuation date at issue, but Mr. Strell did not examine, or even mention, these later sales in his report. See R. 933-934, 936, 938-939, 943-946. Sound appraisal practice required that he disclose and evaluate these later sales. See The Appraisal of Real Estate at 141 (stating that sales comparisons are useful when similar properties have recently been sold). That Mr. Strell did not do so underscores the other deficiencies in his appraisal report, as well as the error made by the trial court and majority of Appellate Division when those courts adopted his conclusion as to the applicable capitalization rate. Finally, it is worth mentioning that Mr. Strell does not even bother to tell the reader of his report what period the estimated expense information for his allegedly comparable apartment complexes covers. He gives a sale date for each - 42 - of the four properties, but does not specify whether the forecast expense information pertains to the year of the sale, or some other time. Indeed, for the Indian Church Road Apartments, Mr. Strell states that he had “limited historic operating expenses…provided by a representative of the owner for the period 2001 to 2003.” R. 1073. Again, the dissenting Justices at the Appellate Division highlighted the danger inherent in the majority’s decision to credit Mr. Strell’s Appraisal in spite of these deficiencies: We cannot agree with the majority’s conclusion that the failure to adjust for such relevant, marketable characteristics as age and size (see generally Matter of Bialystock & Bloom v Gleason, 290 AD2d 607, 608) is simply a matter of “weight to be given [petitioner’s] appraisal.” We recognize that “[t]he suitability of comparable sales is a matter resting within the sound discretion of the trial court” and that differences in properties may be accounted for by adjustments (Chase Manhattan Bank v State of New York, 103 AD2d 211, 222; see Niagara Falls Urban Renewal Agency v 123 Falls Realty, 66 AD2d 1009, 1010, appeal dismissed 46 NY2d 997, lv denied 47 NY2d 711). Nor do we question the general principle that “ ‘[comparability] does not . . . connote . . . identity’ ” (Matter of Katz v Assessor of Vil./Town of Mount Kisco, 82 AD2d 654, 658). Contrary to the majority, however, we conclude that the degree of comparability “becomes a questions of fact” only where the differences between a subject property and comparable properties have been explained and adjusted for value (Niagara Falls Urban Renewal Agency, 66 AD2d at 1010). Inasmuch as the record does not reflect any adjustment for the age and size of the comparable - 43 - properties’ units by petitioner’s appraiser, any consideration of those factors by the Trial Referee or Supreme Court, or any basis for this Court to make its own adjustments, we are compelled to conclude that the purportedly comparable properties are incomparable as a matter of law. In other words, if weight of the evidence is the standard to be applied (see National Fuel Gas Supply Corp. v Goodremote, 13 AD3d 1134, 1135; Champlain Natl. Bank v Brignola, 249 AD2d 656, 657), we conclude that petitioner’s appraisal should be accorded no weight. R. 1138-39. Accordingly, respondents respectfully submit that, if the Strell Appraisal is not stricken (and the petition dismissed), the Appellate Division’s Order should still be reversed, and the Order entered by the Supreme Court should be modified as suggested by the dissenting Justices at the Appellate Division - to reduce the aggregate assessment for the condominium units at issue to $5,080,000.00, and to adopt respondents’ apportionment of values among each of the units at issue. See R. 1139. CONCLUSION For all of the reasons set forth above, the Order of the Appellate Division should be reversed, the Strell Appraisal should be stricken, and the Petition should be dismissed. In the event this Court declines to grant that relief, however, the Appellate Division Order should still be reversed, and the Order entered by the Supreme Court should be modified as suggested by the dissenting Justices at the Appellate Division - to reduce the aggregate assessment for the condominium units at issue to $5,080,000.00, and to adopt respondents' apportionment of values among each of the units at issue. Dated: Doc #01 -2652372.5 Buffalo, New York August 5, 2013 By:---->.".,.,L---_~.---------- Craig . eslie Paul Morrison-Taylor Attorneys for Respondent Town of Amherst One HSBC Center, Suite 3400 Buffalo, New York 14203-2887 Telephone No.: (716) 847-8400 - 44- EXHIBIT A APP-2 • I 196 I 197 198 I 199 I 200 2QI I • 202 203 20' 205 I 206 207 I 208 209 I 210 211 I .212 2l.3 I 214 215 216 I 217 218 • 219 220 221 • 222 223 224 I 225 226 227 • 228 229 I 230 231 I 232 233 I , ETHICS RULE ETHICS RULE An appraiser must promote and preserve the public trust inherent in appraisal practice by observing the hqihest standards of professional ethics. An appraiser must comply with USPAP when obligated by law or regulation, or by agreement with . the client or intended users. In addition to these requirements, an individual should co~ply any time that iodividual represents that he or she is performing the service as an appraiser. Comment: This Rule specifies the personal obligations and responsibilities of the individual appraiser. An individual appraiser employed by a group or organization that conducts itself in a manner that does not conform to USPAP should take steps that are appropriate under the circumstances to ensure compliance with USPAP. This ETHICS RULE is divided into three sections: Conduct, Management, and Confidentiality which apply to all appraisal practice. Conduct: An appraiser must perform assignments with impartiality, objectivity, and "independence, and without accommodation- Qf personal int.erests. An appraiser: • must-not perform an assignment wi.th bias; • must-not advocate the. cause or interest of any p'atty or issue; • must nof accept an assignment that includes the reporting of pr.edetermined opinions -and conclusions; • must not .mis-represent his or her role When pro-viding valuation services that are ou~~ide of apP'raisal practice; • must not communicate assignment results with the intent to mislead or to defraud; • must not use or communicate a report that is known hy the appraiser to he misleading or. fraudulent; . .. must not' knowingly permit an, employee or other person to communicate a misleading or fraudulentnport; • must not use or :-ely on unsupported conclusions relating to characteristics snch as race, color1 religion, national origin, gender, marital status, familial status, age, receipt of public assistance income, handicap, or an unsupported conclusion that homogeneity of stich characteristics is necessary to maximize value; • must not en,g3:ge in criminal. conduct; • must not willfully or kuowingly violate the requirements oUhe RECORD KEEPING RULE; and jI mu-st not perform-an assignment-in a grossly negligent manner. Comment: Development standards (1-1,3-1,4-1,6-1,7-1 and 9-1) address the requirement that '~an app~ser must not render appraisal services in a careless or negligent manner ," The above requirement deals with an apprai.ser being grossly negligent in performing an assignment which ;vould be a violation of the Conduct sectiouof the.ETHICS RULE. USPAP 2012-2013 Edition ©The_Appraisal Foundation APP-3 U-7 I EXHIBIT B I I .' I I • I I I • I I , I I FOREWORD REVISIONS TO USPAP AND USPAP ADVISORY OPINIONS The 2008-2009 edition of US PAP is the result of two exposure drafts, issued on December 15,2006 and March 5, 2007. Based on written responses, public testimony at Appraisal Standards Board (ASB) public meetings, and extensive deliberation by the Board, the ASB adopted the 2008-2009 USPAP on June 8,2007. The adopted changes are incorporated in the 2008-2009 USPAP and associated guidance effective January I, 2008 through Decem ber 31, 2009. KEY CHANGES IN USPAP AND ADVISORY OPINIONS DEFINITIONS: The definition of Supplemental Standards was deleted. • • • The majority 'of appraisers, users of appraisal services, and enforcement officials recognize that Supplemental Standards include laws and regulations. Appraisers must comply with laws and regulations because of the nature of law itself, not because of USPAP. Thus~ continued use' of Supplemental Standards as a defmed term was unnecessary, Descriptions of "laws" and "regulations" are provided in the SCOPE OF WORK RULE based on their respective Black's Law Dictionary definitions. The deletion of the definition removes specific recognition of Government Sponsored Enterprises (GSE) as a source of assignment conditions because they provide guidelines, which are not laws or regulations. However, the edits do not change 1) the necessity for an appraiser acting in compliance with USPAP to follow GSE guidelines where applicable; and, 2) the enforcement of US PAP, including those items necessary for competent performance and meaningful reporting. DEFINITIONS: The definition of Advocacy was deleted. • Edits to the Conduct Section of the ETHICS RULE rendered the definition unnecessary because the term is used with its common English meaning. ETHICS RULE: Edits were made to the Conduct section of the ETHICS RULE related to advocacy. The edits make clear that advocating the cause or interest of any party or issue contradicts the requirement for independence. The changes do not diminish the prohibition agalTIst advocacy in appraisal practice; advocacy remruns unacceptable. SUPPLEMENTAL STANDARDS RULE: The SUPPLElviENTAL STANDARDS RULE was deleted because the other requirements of USPAP eliminate the need for the Rule.· The duty for the appraiser to comply with applicable assignment conditions is embedded in the obligations to provide ethicaJ and competent services. The SCOPE OF WORK RULE requires appraisers to identify the problem to be solved, which includes identitication of assignment conditions. In communicating assignment results, the requirement that reports be meaningful and not misleading creates an obligation to comply with applicable laws, regulations, and guidelines. Associated Changes to the SCOPE OF WORK RULE, the Conduct section of the ETHICS RULE and the COMPETENCY RULE: • • • The SCOPE OF WORK RULE has been edited to replace the term :'Supplemental Standards" with "laws and regulations." This change highlights and focuses the SCOPE OF WORK RULE on assignment conditions that have legal force. The SCOPE OF WORK RULE states that it is the appraiser's responsibility to identify the problem to be solved. Therefore, the Conduct section of the ETHICS RULE was modified to remove text that identifies the need for an agreement between the client and appraiser when accepting an assignment when supplemental standards apply. Text was added to the COMPETENCY RULE to acknowledge tbat appraisers must recognize and comply with laws and regulations that apply in an assignment. Laws and regulations may apply to the. actions of the appraiser, or may apply to how an appraisal mu.st be completed. ©The Appraisal Foundation APP-5 U-v