THE ART OF THE ADJUSTMENT PROCESS

1. THE ART OF THE ADJUSTMENT PROCESS George Librizzi George Raymond Brown

2. GOALS A review of the classicaldevelopment and application of adjustments in the appraisal process

3. This seminaris intended to raise issues and be thought provoking rather than a definitive guide to specific adjustment methodology

4. What are the Judges saying? A strong message has been sent to the appraisal community by the courts

5. It is in your best interest to be aware of the court’s opinions on a particular property type BEFORE appearing before them! …or your valuation could get booted out! https://www.judiciary.state.nj.us/taxcourt/taxcrtopinion.htm

6. Incompetence? Lack of supporting evidence? Or just poor preparation? What is the root of the issue?

7. OUR WORK SCOPE OF WORK PERSONAL HISTORY EXPERIENCE OBSERVATIONS WHAT DID WE PREPARE

8. Super Secret Adjustment Guide

9. Super Secret Adjustment Sheet – 2013 GBA or SFLA $30 -$130 per Sq. Ft. (except for condominiums) Heat type Hot water baseboard - $2,500 Forced Air – A/C +2,500 Land $3 per Sq. Ft. (30% of site value) Land $10,000 per acre (rural home sites) Condo GBA $110-180 per Sq. Ft. GRM (Wildwood) 80 – 425 (Stone Harbor) Cap rate 8.0 – 9.0 Fireplace $2,500 Pool $25,000 Basement $5,000 Finished Basement $10,000 Entrepreneurial profit ----- 10 Percent

10. OVER-COMING THE PRESUMPTION OF CORRECTNESS Pantasote Co. v. City of Passaic The presumption must be rebutted by cogent evidence that must be, ..definite, positive, and certain in quality and quantity Presumption remains in effect even if the district used a flawed valuation method

11. COMMON ADJUSTMENTISSUES The Principle of Contribution Customary, Usual & Reasonable The Sequence Comparative Analysis

14. MAJOR SALES COMPARISON TECHNIQUES QUALITATIVE QUANTITATIVE Should be applied first Justify the reasonableness Extensive discussion of reasoning Location = quantitative It is expected the expert will explain the why’s and wherefores

15. RISKY BUSINESS WHEN YOU RELY ON ONE APPROACH

16. “Take nothing on its looks; take everything on evidence. There’s no better rule”~Charles Dickens~

17. HOROVITS VS LONG BRANCH CITY (APPELLATE ~ FEB 2014)

18. a. High value residential in day long trial b. Named experts; remember your reputation is on trial c. Quality dispute and bathroom count issue d. Sales outside of the subject’s taxing district approved e. Adjustment issues generally are addressed f. Cost approach completed and ignored g. Property record card need not be reviewed h. Plaintiff’s report and testimony “fatally flawed” I. Appellate court defers to the expertise of the tax court j. Small, typographical errors do not undercut the report k. Adjustments must be made to explain differences l. Attacking evidence post hearing is unacceptable m. Admitting an expert report and evidence and relying upon it was not an “abuse of discretion” by the trial judge n. Multiple approaches to value must be reconciled by the court o. Judge relied on both reports; cherry-picking; trial judge has the discretion to adjust comparable sales after review and consideration of both reports

19. Matthew Tuck vs West Caldwell Neighborhood Analysis Sale price ranges Values range per unit Rejection of comparable sales cited Motion for reconsideration post judgment

20. Measurements Suggest a mistake, any mistake Interior inspections Assessment records presumed correct Common types of adjustments Proper comparable sale selection Comparable sales grid of plaintiffs’ appraiser Unit of comparison $/Sq. Ft. of gross living area Using a size related unit of comparison eliminates the need for size adjustments vs Boro of Franklin Lakes Elrabie

21. More from Elrabie…. Condition v. Quality Admitting reports (and testimony) into the record Presumptions of correctness is describe in detail Burden of proof remains with the plaintiff throughout the trial The sales comparison approach is the best method of appraising a residence What spills out of your mouth likely is not retractable; less is more Chapter 123 is inapplicable in the year of a revaluation Counter-claims (20 days), should not be made to achieve a tactical advantage In dealing with the public, government must turn square corners! Without a claim or counterclaim, the court is unable to increase an assessment in a revaluation year where Chapter 123 is inapplicable

22. vs Greenblatt Englewood

23. Discrepancy in building area; heated space Estate sales as market evidence Burden to prove that a sale is not bona fide falls on the challenger using creditable evidence Failure to explain adjustments Facts and data are necessary to support an expert’s opinion Adjustments must have a foundation in market data; possibly supported by a cost manual No support for the cost approach, not even a definition for the word ‘area’ Both appraisals tossed due to lack of support for adjustments

25. Silverman v. Allenhurst a. Using sales in another competitive districtb. Selective rejection of unsupported adjustmentsc. Judgment based upon a fair preponderance of evidence provided by both partiesd. Cost approach is appropriate for valuing new or relatively new construction since cost and market are more closely related when properties are new; also applicable to special purpose buildingse. The tax court is regarded as an expert; they may pick and choose what they rely upon from the expert’s testimony, reports, and the recordf. The court may not apply its own adjustments without support

26. Silverman v. Allenhurst g. Very often “adjustments made to comparable sales are subjective in nature.”h. Excess land substantiation: $1.5 million per acrei. Declining Director’s Ratio equates to an advancing marketj. Errors in the direction of the adjustment, superior or inferior?k. Paired Sales Analysis not included in the report is not consideredl. Unsubstantiated effective age adjustment are unacceptable

27. DEFENDANTS GRID

28. PLANTIFFS GRID

29. JUDGE’S GRID

30. Bogusevich v. Township of Ocean a. Subjective nature of adjustments acknowledged b. No interior inspection of comparable sales conducted c. No adjustment for bathrooms, redundancy of GLA he says? d. Exterior photographs helpful e. GLA and site adjustments rejected due to lack of support f. Land abstraction example detailed (an example for you to you) g. No adjustment for basement or basement finish (could be compared with office area in an industrial warehouse) h. Subject purchase price ignored; expert includes no analysis in report; USPAP error of omission; purchase price could be controlling with support

31. Common Adjustment Issues Adjustment Issues begin with Comparable Sales Selection

32. Selected Sales must have the same highest and best use. The sales must be as similar as possible to the subject, reflecting the actions of typical buyers. You must assume the posture of the typical buyer. The goal is to find sales that require little adjustment. Common adjustments should be linked to the buyer’s perspective. Comparable Sales Selection

33. A Comparable Sale Should be a Realistic Alternative Investment for Buyers in the Subject’s Market Common Adjustment Issues

34. Common Adjustment Solutions Key Terms Relating to the Adjustment Process

35. Paired SalesMatched Pairs Analysis

37. Just As a Single Sale Does Not Reflect Market Value An Adjustment Derived from a Single Pair of Sales is Not necessarily Indicative

39. COMMON ADJUSTMENTS Adjustment Tools based upon Market Conditions

41. Director’s Ratio

49. LOCATION LOCATION LOCATION Underlying Land Values and their Analysis Substantiate Location Adjustments and Much More!

50. Market Conditions Addenda