Doneff v. City of Two Rivers Bd. of Review
| Citation | 184 Wis.2d 203,516 N.W.2d 383 |
| Decision Date | 02 June 1994 |
| Docket Number | No. 92-2812-FT,92-2812-FT |
| Parties | Robert A. DONEFF and Christopher C. Allie, d/b/a Memorial Drive Associates, Petitioners-Appellants, v. CITY OF TWO RIVERS BOARD OF REVIEW, Kenneth Dodge, Chairman, Anthony Roach, Acting Secretary, Steven Nenonen, City Manager, Gregory Erickson, Member, and Tim Tomchek, Member, Respondents-Respondents-Petitioners. |
| Court | Wisconsin Supreme Court |
For the petitioners-appellants there was a brief by Mark A. Miller, and Dewane, Dewane, Kummer & Lambert, Manitowoc and oral argument by Mark A. Miller.
Amicus curiae brief was filed by Curtis A. Witynski, Legal Counsel, Madison, for the League of Wisconsin Municipalities.
This is a review of an unpublished decision of the court of appeals, 508 N.W.2d 421, reversing a judgment of the Manitowoc County circuit court, Judge Darryl W. Deets, that, after a sec. 70.47(13), Stats., review, 1 affirmed a decision of the Board of Review of the City of Two Rivers that the city assessor had correctly valued property recently purchased by Doneff and Allie, d/b/a Memorial Drive Associates (Doneff). The first question we address on review is whether the taxpayer or the assessor bears the burden of proof on the six conditions set forth in the Property Assessment Manual for Wisconsin Assessors that must be met to show that a recent sale was an arm's length transaction and therefore indicative of fair market value. The court of appeals concluded that a legal presumption exists that the following two conditions are met: the buyer and seller are knowledgeable about the real estate market; and the buyer and seller are knowledgeable about the uses, present and potential, of the property. Relying on the long-standing rule that the taxpayer challenging an assessment has the burden of proving that a sale was an arm's length transaction, we conclude that these conditions set forth in the assessor's manual do not create legal presumptions that shift the burden of proof from the taxpayer to the city. The taxpayer retains the burden of proof on all conditions. Therefore, we reverse the decision of the court of appeals.
The second issue we address on this review is whether the Board properly sustained the assessor's valuation of the Doneff property. We conclude that it did. The Board correctly concluded that the sale was not an arm's-length transaction. Doneff did not meet its burden of showing that the sellers were knowledgeable about the real estate market and the uses of the property and were not compelled to sell. The Board justifiably considered additional circumstances surrounding the sale, noting that the sale was private and the property had never been advertised at the sale price. The assessor followed statutory requirements governing assessment in the absence of an arm's length transaction. The alternative approaches provided by the assessor gave the Board a reasonable basis on which to base its conclusion that the assessed value is the fair market value of the property.
On November 22, 1989, Doneff purchased the property, whose assessed value is in dispute in this case, for $130,000. The property is a vacant building that had housed a car dealership with a showroom and a service area on a 10.56 acre paved lot. For 1990, the City of Two Rivers' assessor assessed the property, including both land and building, at $345,500, 2 a considerable reduction from the 1989 assessed value of $600,700. On April 4, 1990, Doneff filed an objection to the assessment with the City of Two Rivers Board of Review (Board), asserting that the assessment exceeded the fair market value of the real estate. On June 11, 1990, the Board conducted a hearing on Doneff's objection to the assessment.
The Board heard testimony from Christopher Allie, one of the property's owners, and Richard Ramminger (Ramminger), a tax consultant for the owners. Allie described the circumstances surrounding the 1989 sale. After the death of the property owner, Bud Erdman, his wife, Shirley Erdman, and his sister became the owners of the property. Attorney William Dean, who represented the owners, suggested to Doneff that he look at the property. After viewing the property, Doneff made the purchase offer of $130,000 and the owners accepted. The property had not been listed at this price and no real estate agent was involved in the transaction.
Ramminger, Doneff's consultant, asserted that the best evidence of fair market value was the recent $130,000 sale price of the property. Ramminger added that he had spoken with attorney Dean, who told him that Shirley Erdman was not forced to sell the property. According to Ramminger, Dean stated that Erdman decided to sell the property for $130,000 because the real estate market was soft, the building had been mostly vacant for ten years, and the building needed major improvements. The Board did not hear testimony from either Dean or Erdman.
City of Two Rivers assessor John Gardner (Gardner) explained that, to arrive at the assessed value, he used a traditional cost approach considering the size of the building and its features. Gardner arrived at an initial cost of $682,195 for the building, then reduced this value by 30 percent to $477,535 to reflect low to mid-range depreciation because the building was twenty-two years old and in fair condition.
Gardner then applied a 50 percent "market adjustment," reducing the value of the building to $238,800. The "market adjustment" was designed to account for the building's structural deficits, such as energy inefficiency, and the fact that it had not proved to be easily marketable. To the $238,800, Gardner added $34,300 for the blacktop paving and $72,400 for the value of the land, bringing the total assessed value to $345,500, or $12.03 per square foot. The valuation of the land and the blacktop was not disputed.
Gardner then did a separate analysis, looking to sales of four comparable properties in the city of Two Rivers and other nearby towns to determine the market value of the Doneff property. Three of the properties he considered are car dealerships and one is a boat sales facility. He began with the actual sales prices of the comparable properties and then adjusted them to reflect differences between the Doneff property and the comparables. The values he assigned to the Doneff property based on these comparisons ranged from $279,496 to $496,282--a range of $12.20 to $17.28 per square foot. From this comparison, Gardner concluded that the actual sale price of $130,000 did not reflect the fair market value of the property. However, Ramminger engaged in a similar comparison using only the most comparable property in Two Rivers and his analysis indicated that the Doneff property should be valued at $135,000--close to the actual sale price.
Gardner stated that he had spoken to Shirley Erdman and her attorney, both of whom said that the sale price was the best they could obtain. Nonetheless, Gardner concluded that the sale was not an arm's-length transaction. He stated that Bud Erdman had probably overvalued the property and then, because the property was on the market for so long, Shirley Erdman probably considered the property a problem and was willing to take any offer for it.
Individuals testifying at the hearing provided the Board with a number of different prices at which the property had been offered for sale between 1980-1989. Few of these figures were independently verified. The prices varied from a low in the range of $200,000 to $300,000, to a high in the range of $600,000 to $650,000. Gardner also provided the Board with documents stating that in 1988, BRE Plastics had offered Erdman $484,545 for the property but Erdman had rejected the offer. Allie added that, at the time of the hearing, the property was listed with the Lakeshore Development Bureau at approximately $400,000.
The Board decided to sustain the assessor's valuation. During the Board's deliberations two board members, Nenonen and Dodge, expressed their reasoning. Nenonen stated that the Board had examined different methods of calculating the value of the Doneff property and the only method that was inconsistent with assessor Gardner's valuation was that urged by Ramminger, Doneff's consultant. Dodge pointed out that the closest comparable property had sold for approximately $265,000 with only one-third the amount of land on the Doneff property. Nenonen also asserted that the sale was not an arm's-length transaction. The Erdman sale was private--the property had not been listed at $130,000 nor had a real estate agent been involved. Considering the lengthy period during which the property had not sold, Dodge thought the sellers may have considered the sale a distress sale.
Pursuant to sec. 70.47(13), Stats., Doneff commenced an action in Manitowoc County circuit court for certiorari review of the Board's decision. Concluding that the Board had relied in part on the BRE Plastics offer, the circuit court remanded the cause to the Board with instructions to take evidence on the cash equivalency of that offer. After considering this evidence at a second hearing on November 11, 1991, the Board again voted to sustain the original assessment.
The circuit court affirmed the Board's decision. The circuit court explained that six conditions must be satisfied for a sale to be considered an arm's-length transaction and therefore adequate evidence of fair market value:
1. It must have been exposed to the open market for a period of time typical of the turnover time for the type of property involved.
2. It presumes that both buyer and seller are knowledgeable about the real estate market.
3. It presumes buyer and seller are knowledgeable about the uses, present and potential, of the property.
4. It requires a willing buyer and a willing seller, with neither party compelled to act.
5. Payment for the property is in cash, or typical of normal...
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