Kerr v. Multnomah County Assessor

IN THE OREGON TAX COURT

MAGISTRATE DIVISION

Property Tax

THOMAS KERR, )

)

Plaintiff, ) TC-MD 120315N

)

v. )

)

MULTNOMAH COUNTY ASSESSOR, )

)

Defendant. ) DECISION

Plaintiff appeals the real market value of property identified as Account R305362 for the

2011-12 tax year. A telephone trial was held in this matter on December 11, 2012, and

December 13, 2012. Steven Anderson (Anderson), an Oregon licensed real estate broker,

appeared on behalf of Plaintiff. Jeff Brown appeared on behalf of Defendant. Barry Dayton

(Dayton), Registered Appraiser 3, testified on behalf of Defendant. Plaintiff’s Exhibits 1 through

12 and Defendant’s Exhibit A were received without objection. The court excluded Plaintiff’s

Rebuttal Exhibits 1 and 2 and Defendant’s Rebuttal Exhibit B because the exhibits served no

rebuttal purpose and were not timely exchanged under Tax Court Rule-Magistrate Division 10 C.

I. STATEMENT OF FACTS

The subject property is a detached, single-family residence located in Gresham, Oregon.

(Ptf’s Ex 1 at 3.) The subject property has two bedrooms, one bathroom, a two-car garage, and a

wood-burning fireplace. (Id.) Defendant described the subject property improvement as:

“[A] single level ‘Shotgun’ Bungalow style dwelling with unfinished basement,

built around 1920. Interior viewing proved items such as kitchen remodeled

within the last fifteen years, bath remodeled within the last ten years, floor

coverings updated, wood floors refinished, what used to be an enclosed porch

converted to Gross Living Area (GLA) that also placed basement stairs into the

GLA as well. Windows are replaced. Vinyl siding. Roofing does show some

discoloration. Overall, the home is in above average condition.”

DECISION TC-MD 120315N 1

(Def’s Ex A at 4.) Plaintiff relied on a Regional Multiple Listing Service (RMLS) printout

stating that the subject property improvement is 960 square-feet, whereas Defendant determined

that the gross living area of the subject property is 1,058 square-feet. (Ptf’s Ex 1 at 3; Def’s Ex

A at 10.) Dayton testified that the RMLS printout appears to be based on old title records for the

subject property prior to the enclosure of the basement stairs. He testified that the gross living

area increased when the basement stairs were enclosed. The subject property lot is located in the

“Low Density Residential-5” zone; the subject property lot is 14,375 square-feet, although the

“maximum site size” in that zone is 5,000 square-feet. (Def’s Ex A at 4.)

The subject property was listed on July 23, 2009, for $180,000 “with disclosure of a short

sale situation.” (Def’s Ex A at 5; Ptf’s Ex 1 at 1.) The price was reduced in January 2010,

February 2010, March 2010, June 2010, and August 2010. (Ptf’s Ex 1-1.) Defendant reported

that, on September 8, 2010, “a transfer by Trustee’s Deed was delivered for the benefit of

Mortgage Electronic Registration Systems, Inc. (MERS), showing default by the Grantor with

following notice of default to sell and foreclose with consideration paid for the transfer of

$135,000.” (Def’s Ex A at 5.) The subject property listing at $145,950 was cancelled on

September 20, 2010. (Ptf’s Ex 1 at 1.) It was relisted on November 4, 2010, at $149,900 and

“disclosed as a bank owned sale * * *.” (Def’s Ex A at 5; Ptf’s Ex 1 at 1.) The subject property

listing price was reduced to $138,100 in December 2010, and reduced again in January and

February 2011 before it sold for $108,000. (Ptf’s Ex 1 at 1.) The sale was pending in March

2011 and closed May 2011. (Id.)

Anderson testified that he completed several “studies” of sales in Gresham using RMLS.

(See Ptf’s Exs 2-10.) He testified that he searched for all Gresham sales in the price range of

$100,000 to $150,000 from January 1, 2010, through December 31, 2011. (Ptf’s Ex 2 at 1.)

DECISION TC-MD 120315N 2

Anderson’s search yielded 264 records, of which 133 were “bank owned” sales and 46 were

“short sale[s].” (Ptf’s Exs 2 at 1, 3 at 1, 4 at 1.) He performed the same search for the time

periods of January 1, 2011, through December 31, 2011, and for May 1, 2011, through May 31,

2011. (Ptf’s Exs 5-10.) Dayton testified that Anderson’s limitation of his search to sales in the

price range of $100,000 to $150,000 created a “self-fulfilling prophesy” with respect to the

percentage of distressed sales in the results. Dayton noted that, because Anderson failed to limit

his property search based on physical characteristics of the subject property, his search yielded

condominiums, attached residences, and manufactured homes. (See, e.g., Ptf’s Ex 2 at 1.)

Dayton testified that he also analyzed the number of short and distressed sales in

Gresham. (See Def’s Ex A at 7.) He testified that he used only single family detached homes in

Gresham and found a significant difference in price between distressed and non-distressed sales.

(Id.) Dayton testified that short sales and bank sales typically sell for lower prices than non-

distressed sales because banks have to approve offers and banks often impose numerous

conditions and clauses that are bad for the buyer; for instance, earnest money is often non-

refundable, properties are often sold as-is, and banks use their own sale contracts. He noted that

the RMLS printout for the subject property indicates such conditions were present: “BOFA Loan

Prequal req’d with financed offer * * * sold as-is * * * upcoming auction.” (Ptf’s Ex 1 at 3.)

Anderson provided a RMLS market action report for May 2011 demonstrating that prices

were still falling in the Portland metropolitan area in 2011. (Ptf’s Ex 12.) Dayton questioned the

relevance of the RMLS Market Action report, noting that the “Portland metropolitan area” for

RMLS includes many areas outside of Multnomah County, such as parts of Yamhill, Clackamas,

Washington, and Columbia counties.

///

DECISION TC-MD 120315N 3

Dayton testified that he identified five comparable sales, all of which were non-distressed

sales located within 0.13 to 0.33 miles of the subject property. (Def’s Ex A at 10-11.) His sales

4 and 5 “are of the same property as a sale and resale of two separate arms-length transactions[.]”

(Id. at 8.) Dayton testified that his comparable sales bracketed the subject property with respect

to age, condition, and gross living area. He considered sales 2 and 3 to be “most similar overall

in regards to condition[.]” (Id.) The unadjusted sales prices of Dayton’s comparable sales

ranged from $145,000 to $181,000. (Id. at 10-11.) He made net adjustments ranging from -11.6

to +17.6 percent. (Id.) Dayton’s adjusted prices ranged from $159,000 to $170,500 and he

concluded a real market value of $163,000 for the subject property. (Id. at 9-11.)

The 2011-12 roll real market value of the subject property was $233,810. (Compl at 3.)

The Board of Property Tax Appeals reduced the 2011-12 real market value to $169,910. (Id.)

The 2011-12 maximum assessed value of the subject property was $141,500. (Id.)

II. ANALYSIS

The issue before the court is the real market value of the subject property for the 2011-12

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

special assessments.” Richardson v. Clackamas County Assessor (Richardson), TC-MD No

020869D, WL 21263620 at *2 (Mar 26, 2003) (citations omitted)). Real market value is defined

in ORS 308.205(1),1 which states: “Real market value of all property, real and personal, means

the amount in cash that could reasonably be expected to be paid by an informed buyer to an

informed seller, each acting without compulsion in an arm’s length transaction occurring as of

the assessment date for the tax year.” The assessment date for the 2011-12 tax year was

January 1, 2011. ORS 308.007; ORS 308.210.

1

All references to the Oregon Revised Statutes (ORS) and Oregon Administrative Rules (OAR) are to

2009.

DECISION TC-MD 120315N 4

The real market value of property “shall be determined by methods and procedures in

accordance with rules adopted by the Department of Revenue * * *.” ORS 308.205(2). There

are three approaches of value that must be considered, although all three may not be applicable

in a given case. OAR 150-308.205-(A)(2)(a). The three approaches are: (1) the cost approach,

(2) the sales comparison approach, and (3) the income approach. Id.

Plaintiff did not provide evidence under any of the three approaches of value, relying

instead on the May 2011 sale of the subject property. The lack of an appraisal is not fatal

because “[t]he various approaches to valuation * * * are only the vehicles used to determine the

ultimate fact -- market value.” Kem v. Dept. of Rev. (Kem), 267 Or 111, 114, 514 P2d 1335

(1973). “A recent sale of the property in question is important in determining its market value.

If the sale is a recent, voluntary, arm’s length transaction between a buyer and seller, both of

whom are knowledgeable and willing, then the sales price, while certainly not conclusive, is very

persuasive of the market value.” Id. “In the absence of data indicating that ‘the price paid was

out of line with other market data material, we believe [a recent sale] to be one of the best and

most satisfactory standards for the estimation of actual value although, admittedly, it is not

conclusive.’ ” Ernst Bros. Corp. v. Dept. of Rev., 320 Or 294, 300, 882 P2d 591 (1994), citing

Equity Land Res. v. Dept. of Rev., 268 Or 410, 415, 521 P2d 324 (1974).

Defendant relied on the sales comparison approach. “In utilizing the sales comparison

approach only actual market transactions of property comparable to the subject, or adjusted to be

comparable, will be used. All transactions utilized in the sales comparison approach must be

verified to ensure they reflect arms-length market transactions.” OAR 150-308.205-(A)(2)(c).

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

DECISION TC-MD 120315N 5

location * * * in order to determine the real market value[]” of the subject property. Richardson,

WL 21263620 at *3.

Plaintiff has the burden of proof and must establish his case by a preponderance of the

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

evidence, the more convincing evidence.” Feves v. Dept. of Rev., 4 OTR 302, 312 (1971).

Plaintiff “must provide competent evidence of the [real market value] of [his] property.” Woods

v. Dept. of Rev., 16 OTR 56, 59 (2002). “Competent evidence includes appraisal reports and

sales adjusted for time, location, size, quality, and other distinguishing differences, and

testimony from licensed professionals such as appraisers, real estate agents, and licensed

brokers.” Danielson v. Multnomah County Assessor, TC-MD No 110300D, WL 879285 (March

13, 2012). “[I]f the evidence is inconclusive or unpersuasive, the taxpayer will have failed to

meet his burden of proof * * *.” Reed v. Dept. of Rev., 310 Or 260, 265, 798 P2d 235 (1990).

“[T]he court has jurisdiction to determine the real market value or correct valuation on the basis

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

305.412.

Relying on Kem, Anderson argued that the sale of the subject property is the best

evidence of its real market value as of January 1, 2011. Anderson noted that the subject property

was on the market for a total of 542 days. Dayton disagreed that the sale of the subject property

is persuasive evidence, focusing on the fact that it was a bank sale following foreclosure.

Under Kem, a sale of the subject property must be “recent.” 267 Or at 114. “Whether a

transaction is so recent as to be persuasive of present value will depend upon the similarity of

conditions affecting value at the time of the transaction and conditions affecting value at the time

of the assessment.” Sabin v. Dept. of Rev., 270 Or 422, 426-27, 528 P2d 69 (1974). The sale of

DECISION TC-MD 120315N 6

the subject property was pending as of March 2011 and closed May 2011. Anderson provided a

May 2011 RMLS market action report demonstrating that prices in the Portland metropolitan

area were falling in 2011. As noted by Dayton, the relevance of that report is questionable given

the large geographic area included. To the extent that weight is given to the report, it suggests

that market conditions in May 2011 were somewhat inferior to conditions in January 2011.2

Based solely upon the change in market conditions, the May 2011 sale of the subject property for

$108,000 was likely less than its real market value as of January 1, 2011.

A sale of the subject property must also be a “voluntary, arm’s length transaction * * *.”

Kem, 267 Or at 114. The May 2011 sale of the subject property was a bank sale following

foreclosure. “This court has been reluctant to consider ‘foreclosure’ sales as ‘arm’s-length

transactions’ because such sales ‘may well involve an element of compulsion on the part of the

seller.’ ” Voronaeff v. Crook County Assessor, TC-MD No 110361C at 7 (Apr 25, 2012)

(citations omitted). “[T]he lender may have a policy of selling such property only for the amount

of the underlying debt, regardless of what the property may actually be worth, particularly if it

would take a few months more to find a buyer willing to pay a higher price.” Kryl v. Lane

County Assessor, TC-MD No 100192B, WL 1197444 at *2 (Mar 30, 2011). Property purchased

through foreclosure may be “a voluntary bona fide arm’s-length transaction between a

knowledgeable and willing buyer and a willing seller.” Ward v. Dept. of Rev. (Ward), 293 Or

506, 508, 650 P2d 923 (1982). “There are narrow exceptions determined on a case-by-case basis

to the holding that bank-owned property sales are not typically representative of real market

value.” Brashnyk v. Lane County Assessor (Brashnyk), TC-MD No 110308 at 8, WL 6182028

*5 (Dec 12, 2011).

2

The May 2011 RMLS market action report states: “Average sale prices for May 2011 declined 4.8%

compared to May 2010. Median sale prices also fell 7.9%.” (Ptf’s Ex 12 at 1.)

DECISION TC-MD 120315N 7

“[W]here the majority of sales are distress, it would seem that that kind of sale would

provide a more accurate reflection of the market.” Morrow Co. Grain Growers v. Dept. of Rev.,

10 OTR 146, 148 (1985). Anderson provided several studies of Gresham sales purporting to

show that the majority of sales in Gresham close to the January 1, 2011, assessment date were

“bank owned” sales or “short sales.” As noted by Dayton, Anderson’s studies suffered from

several flaws. First, the studies were not limited by property type or other characteristics that

would limit sales included in the studies to properties comparable to the subject property. To the

extent that the studies focused on properties in different markets than the subject property, the

studies are unpersuasive. Second, Anderson limited his studies to sales in the price range of

$100,000 to $150,000. Given that the ultimate issue in this appeal is the real market value of the

subject property as of January 1, 2011, it is unclear why Anderson limited his study to sales of

properties in a set price range. Anderson’s studies are unpersuasive insofar as they are premised

on the assumption that the real market value of the subject property as of January 1, 2011, was in

between $100,000 and $150,000. Furthermore, it is unsurprising that many sales at low end of

the price range are distress sales. As Dayton noted, Anderson created a “self-fulfilling prophesy”

by limiting his studies to sales at the low end of the price range.

If a property has been marketed for a sufficiently long period of time and properly

exposed to the market, the implication of distress on the part of the seller may be removed and a

bank sale may be found to be arm’s-length. Ward, 293 Or at 508; see Brashnyk, WL 6182028 at

*6 (a five year listing period, including four years prior to the bank’s acquisition, was persuasive

evidence that the bank sale reflected market value). This court has observed that “bona fide

listings establish the upper limit on the market value of the listed property.” Martin v. Dept. of

Rev., 8 OTR 141, 147 (1979); see Metzger v. Clatsop County Assessor, TC-MD No 120534D at

DECISION TC-MD 120315N 8

8 (Oct 30, 2012) (finding that the real market value of the subject property was “no more than *

* * the subject property’s final listing price, a price set close to the assessment date”).

Prior to foreclosure in September 2010, the subject property was listed beginning July

2009 for $180,000 and continuously listed thereafter until September 2010. The final listing

price as of September 20, 2010, was $145,950. Following foreclosure, the subject property was

re-listed for $149,900 in November 2010. The lengthy listing history of the subject property

prior to foreclosure suggests that the real market value of the subject property as of January 1,

2011, was no more than $145,900.

Dayton relied on the sales comparison approach and concluded that the real market value

of the subject property as of January 1, 2011, was $163,000. His adjusted sale prices ranged

from $159,000 to $170,500. Plaintiff offered no competent evidence in rebuttal of Dayton’s

sales comparison approach. It is difficult to reconcile the listing history of the subject property

with Dayton’s sales comparison approach, other than to observe that value “is a range * * *

rather than an absolute.” Price v. Dept. of Rev., 7 OTR 18, 25 (1977). Ultimately, the court

finds that the listing of the subject property from July 2009 through September 2010 provides the

most persuasive evidence of real market value as of January 1, 2011. The court concludes that

the 2011-12 real market value of the subject property was $145,950.

The court’s 2011-12 real market value conclusion of $145,950 exceeds the 2011-12

maximum assessed value of the subject property, $141,500. For the court to order a change to

the tax roll, Plaintiff must be aggrieved. ORS 305.275(1)(a). To be aggrieved, the ordered

change to the tax roll must result in a property tax reduction. The court did not receive evidence

as to whether a reduction in the real market value of the subject property to $145,950 would

result in tax savings to Plaintiff. The court will not order a change unless Plaintiff is aggrieved.

DECISION TC-MD 120315N 9

III. CONCLUSION

After carefully considering the testimony and evidence presented, the court finds that the

2011-12 real market value of the subject property was $145,950. The court will not order a

change to the tax roll unless Plaintiff is aggrieved. Now, therefore,

IT IS THE DECISION OF THIS COURT that the real market value of property

identified as Account R305362 was $145,950 for the 2011-12 tax year. The tax roll will be

adjusted only if Plaintiff is aggrieved under ORS 305.275.

Dated this day of February 2013.

ALLISON R. BOOMER

MAGISTRATE

If you want to appeal this Decision, file a Complaint in the Regular Division of

the Oregon Tax Court, by mailing to: 1163 State Street, Salem, OR 97301-2563;

or by hand delivery to: Fourth Floor, 1241 State Street, Salem, OR.

Your Complaint must be submitted within 60 days after the date of the Decision

or this Decision becomes final and cannot be changed.

This Decision was signed by Magistrate Allison R. Boomer on

February 21, 2013. The Court filed and entered this Decision on

February 21, 2013.

DECISION TC-MD 120315N 10