El Paso County Bd. of Equalization v. Craddock

• Citation: 850 P.2d 702
• Decision Date: 12 April 1993
• Docket Number: No. 92SC6,92SC6
• Parties: EL PASO COUNTY BOARD OF EQUALIZATION; The Board of Assessment Appeals of the State of Colorado; and Ramon L. LeDuke and Susan Broyles Layton, each as Members of the Board of Assessment Appeals of the State of Colorado, Petitioners, v. James CRADDOCK and American Capital Fidelity Corporation, a California Corporation, as successor in interest to James Craddock, Respondents.
• Court: Supreme Court of Colorado

Page 702

850 P.2d 702

EL PASO COUNTY BOARD OF EQUALIZATION; The Board of

Assessment Appeals of the State of Colorado; and Ramon L.

LeDuke and Susan Broyles Layton, each as Members of the

Board of Assessment Appeals of the State of Colorado, Petitioners, v. James CRADDOCK and American Capital Fidelity Corporation, a

California Corporation, as successor in interest

to James Craddock, Respondents.

No. 92SC6.

Supreme Court of Colorado,

En Banc.

April 12, 1993.

Rehearing Denied May 10, 1993.

Gale A. Norton, Atty. Gen., Raymond T. Slaughter, Chief Deputy Atty. Gen., Timothy M. Tymkovich, Sol. Gen., Maurice G. Knaizer, Deputy Atty. Gen., Larry A. Williams, First Asst. Atty. Gen., Thomas D. Fears, Asst. Atty. Gen., General Legal Services Section, Denver, for petitioners.

James E. Heiser, Denver, for respondents.

Justice MULLARKEY delivered the Opinion of the Court.

The El Paso County Board of Equalization (the Board), the Board of Assessment Appeals, and Ramon L. LeDuke and Susan Broyles Layton (referred to collectively as the BAA) sought review of an unpublished decision of the court of appeals, Craddock v. El Paso Board of Equalization, No. 90CA1771 (Nov. 7, 1991), in which the court of appeals, construing sections 39-1-103(14)(b) and (c)(I), 16B C.R.S. (1982 and 1992 Supp.), held that the BAA must apply the anticipated market absorption rate to the appraised value of the respondents' property. Because we conclude that the court of appeals has misconstrued the applicable statute, we reverse the judgment of the court of appeals with directions to remand the case to the BAA to reinstate its valuation of the property.

I.

Respondents James Craddock and American Capital Fidelity Corporation (Craddock) own approximately 276 acres of unplatted vacant land, divided into seven tracts. The property is located in an industrial area of El Paso County between Powers Boulevard and the municipal airport, extending both north and south of Fountain Boulevard. After considering the three approaches to appraisal, the cost approach, the income approach, and the market approach, the El Paso County Assessor (the assessor) valued the property using the market approach, with a valuation of $12,256,494 as of June 30, 1988. Craddock appealed the valuation to the Board which denied the protest. Craddock subsequently appealed to the BAA. In support of the appeal, Craddock introduced an appraisal based on fourteen comparable land sales. Craddock's appraisal valued the property at a market value of $10,540,000, and after applying the market absorption rate, derived a final discounted value of $6,140,000 for Craddock's property.

The BAA found Craddock's comparable sales to be "far superior" to those presented by the assessor. However, the BAA concluded that the subject tracts were not eligible for a market absorption discount. Accordingly, the BAA ordered the Board to reduce the assessed value to $10,540,000.

Craddock appealed the BAA's decision to the court of appeals. The court of appeals, relying on that court's decision in East Arapahoe Land Co. v. Board of Assessment Appeals, 805 P.2d 1170 (Colo.App.1990), held that the BAA was in error in its apparent reasoning that the market absorption rate cannot be used in valuing unplatted vacant land. Reversing the BAA's decision, the court of appeals held that the assessor was required to apply the market absorption rate in valuing vacant, unplatted land.

We granted certiorari on the following issue: Whether section 39-1-103(14)(b), 16B C.R.S. (1992 Supp.) mandates the application of the anticipated market absorption rate to all vacant land, even if it is unplatted and unsubdivided? Because we conclude that the court of appeals, both in this case and in East Arapahoe, has misconstrued this statute and has improperly substituted its judgment for that of the assessor and the BAA regarding the technical process of valuing real property, we reverse the judgment of the court of appeals in this case, overrule East Arapahoe, and remand this case with directions.

II.

A.

An assessor has a duty to determine the actual value of all real and personal property for property tax purposes. § 39-1-103(5)(a), 16B C.R.S. (1992 Supp.). The methods which the assessor may use in determining actual value are prescribed by statute. § 39-1-101, 16B C.R.S. (1982 & 1992 Supp.). There are three statutorily mandated approaches to valuation of property: the cost approach, the market approach, and the income approach. § 39-1-103(5)(a). When valuing vacant land, an assessor is to also take into account several additional factors, including the "anticipated market absorption rate." § 39-1-103(14)(b) and (c)(I). ¹ To guide the state's assessors in valuing property, the Property Tax Administrator has a statutory duty to prepare and publish manuals, appraisal procedures, and instructions concerning method of appraising and valuing property, based upon the three statutorily mandated approaches to appraisal. § 39-2-109(e), 16B C.R.S. (1992 Supp.). In fulfillment of this duty, the Division of Property Taxation has published the Assessors Reference Library, Volume Three of which concerns land valuation.

When construing a statute, courts afford deference to the interpretation given the statute by the officer or agency charged with its administration. Howard Elec. and Mechanical Inc. v. Department of Revenue, 771 P.2d 475, 478-79 (Colo.1989). Courts, of course, must interpret the law and are not bound by an agency decision that misapplies or misconstrues the law. Id. An administrative agency's construction should be given appropriate deference, but is not binding on the court. Id. Administrative interpretations are most useful to the court when the subject involved calls for the exercise of technical expertise which the agency possesses and when the statutory language is susceptible to more than one reasonable interpretation. These factors lend great weight to the Property Tax Administrator's interpretation of the statutory provision now before us and entitle that interpretation to deference. We find the Property Tax Administrator's interpretation to be persuasive in deciding this case.

The Property Tax Administrator has listed five criteria for determining the applicability of present worth discounting. 3 Assessors Reference Library at 1.44. These criteria are:

1. Applied to vacant land (land without a structure) only. An exception is when the assessor has classified a minor structure on vacant land.

2. A defined sales or marketing area can be established.

3. Less than 80% of the lots, tracts, or parcels within the marketing area have been sold.

4. More than one lot, tract, or parcel in the marketing area.

5. The absorption period for the marketing area is calculated to be more than one year.

Id. The Administrator has stated that there is no requirement either that the tracts, lots, sites, or parcels of vacant land be in a legal subdivision, or that discounting applies only to residential land. Id.

B.

The "anticipated market absorption rate," ² in this context, is a method which adjusts the value of property to account for the developer's cost of development and placing site improvements. Its purpose is to assist a developer by relieving some of the burden of carrying the up-front costs expended in preparing the property for development and retail sale. The anticipated market absorption rate recognizes the time value of a developer's investment by treating the value of individual subdivision lots like payments in an anticipated future annuity stream. In other words, instead of valuing a multiple-lot subdivision development as the sum of the values of the individual lots, the anticipated market absorption rate discounts the value of the development to the amount that a purchaser of the development would be willing to pay for the entire development on the assessment date. The value derived is the present value of the future income stream represented by the anticipated future sales of the individual lots. This adjustment of value is important because, in valuing property, the sum of the parts can be, and often is, greater than the whole. "The market value of a large parcel does not necessarily equal the sum of the market value of the parts into which that parcel may be divided or subdivided because smaller parcels may be more readily marketable." Ward v. Department of Revenue, 293 Or. 506, 650 P.2d 923, 925 (1982). Offsetting the ready marketability of smaller parcels of property is the fact that, despite the "ready market," selling a large number of lots takes time.

The Property Tax Administrator has set out a four-step process for assessors to use in applying the anticipated market absorption rate. 3 Assessors Reference Library at 7.34-7.42. First, the assessor must determine a "marketing area," ³ that is, a group of properties used for marketing or sales of platted land by a subdivider or developer, not necessarily limited to platted subdivisions, filings, blocks, or other defined legal descriptions. After a marketing area is determined, an assessor must determine an adjusted selling price for each individual lot. This is done by collecting comparable sales and adjusting them according to time, location, and condition differences between the comparable sales and the subject properties. Third, an assessor must determine the absorption period, by dividing the number of tracts remaining in the marketing area by the rate at which the tracts historically have sold.

Finally, the assessor must discount the adjusted selling price to present value. This requires an additional three steps. First, the assessor must choose an appropriate discount rate and determine the appropriate discounting factor. This discounting factor is the present value of an annuity of one dollar per period over the absorption period. The discounting factor can be derived from standard tables or by using a financial calculator. The next step is...