Ramsey County v. Miller

• Decision Date: 19 March 1982
• Docket Number: No. 52030.,52030.
• Citation: 316 NW 2d 917
• Parties: The COUNTY OF RAMSEY, petitioner, Respondent, v. Richard N. MILLER and Tanya B. Miller, husband and wife, Appellants, City of New Brighton, County of Ramsey, et al., Respondents-Below.
• Court: Minnesota Supreme Court

316 N.W.2d 917 (1982)

The COUNTY OF RAMSEY, petitioner, Respondent, v. Richard N. MILLER and Tanya B. Miller, husband and wife, Appellants City of New Brighton, County of Ramsey, et al., Respondents-Below.

No. 52030.

Supreme Court of Minnesota.

March 19, 1982.

Olson Gunn & Seran, Richard J. Gunn, Minneapolis, for appellants.

Tom Foley, County Atty., St. Paul, Peterson Bell & Converse and Robert C. Bell, St. Paul, for respondent.

Heard, considered, and decided by the court en banc.

YETKA, Justice.

Richard Miller appeals following a jury verdict on valuation in a condemnation proceeding in Ramsey County. We reverse and remand for a new trial.

Appellants owned approximately 79.9 acres of land in the City of New Brighton. The property is scenic wooded land along Rice Creek, with approximately 23 acres of high ground and the remaining 57 acres within the flood plain of Rice Creek. The surrounding area is a developed residential neighborhood. The City of New Brighton had constructed a bridge over Rice Creek through the center of the property and had installed public water and sewer facilities in preparation for development.

In 1975, Ramsey County began condemnation proceedings to acquire the subject property owned by appellants for a park and open space system. The district court found the proposed taking necessary and appointed commissioners who awarded damages of $415,000 in June 1976. Appellant owners appealed the award to Ramsey County District Court and, after a jury trial in June 1980, were awarded a judgment of $665,000. Appellants moved for additur or a new trial on the grounds, among others, that evidence supporting the development cost approach to determine market value was erroneously excluded and that other evidentiary rulings were erroneous. Respondent moved for remittitur. By order dated October 29, 1980, the court denied both motions, from which denial appellants appeal.

At trial on the issue of valuation, all witnesses agreed the highest and best use of the property was for residential development, but disagreed as to the number and types of residential units for which the property was suited. Opinions ranged from 20 units to 477 units. The applicable zoning would permit a maximum of 477 dwelling units under a planned residential development. Appellants were not permitted to introduce into evidence plats illustrating a proposed development plan. The parties introduced conflicting evidence on the support characteristics of the soil. The parties also introduced conflicting expert opinions on the likelihood of the granting by the Rice Creek Watershed District of the permit which would be required before a builder could put any fill in the flood plain.

Value witnesses expressed opinions of the value of the property as follows:

Witnesses for the county: $372,000; $280,000; and $415,000.

Witnesses for appellants: $2,027,250; $1,635,000; $2,330,000; and $1,700,000.

The county's witnesses were permitted to discuss comparable sales on which they based their opinions, but were prohibited from discussing specific prices of comparable sales except on cross-examination. Appellants' witnesses were permitted to describe in general the development cost approach by which they appraised the property, but were not permitted to discuss the numerical data or analyses underlying their opinions. Engineering testimony on the cost of development was also excluded.

Appellants' offer of proof not admitted into evidence establishes that in 1970 appellants submitted a proposed development plat to the city, on which the city deferred final action pending a study of the flood plain by the Army Corps of Engineers. Evidence was admitted that the Corps of Engineers' study, completed in November 1971, indicated that portions of the site would be under water in a 100-year flood. The court took judicial notice that on November 22, 1971, Ramsey County Commissioners passed a resolution authorizing acquisition of the property by negotiation or condemnation, but this evidence was not presented to the jury.

The issues on appeal are:

(1) Is specific numerical, analytical, and illustrative evidence supporting a development cost approach to valuation admissible?

(2) Was cross-examination of appellant landowner regarding the purchase price of the subject property prejudicial error to appellants?

(3) May a valuation witness be cross-examined regarding sales prices of comparable property not considered in his own valuation?

(4) Should appellants' proposed plat have been admitted as evidence of highest and best use?

(5) Must the court inform the jury of facts of which it took judicial notice?

(6) May the matter be remanded for consideration of whether the taking of the entire 80 acres was necessary?

Other errors alleged by appellants were not briefed to this court and, upon examination, are found to be without merit.

To determine the fair market value of property in a condemnation proceeding "any competent evidence may be considered, if it legitimately bears upon the market value." State v. Malecker, 265 Minn. 1, 5, 120 N.W.2d 36, 38 (1963) (footnote omitted). The measure of compensation is the amount which a purchaser willing, but not required, to buy the property would pay to an owner willing, but not required, to sell it, taking into consideration the highest and best use to which the property can be put. City of St. Paul v. Rein Recreation, Inc., 298 N.W.2d 46, 49 (Minn. 1980). In appraising land for which the highest and best use indisputably is residential subdivision, an appraiser must consider the property in the same manner as would a prospective purchaser of the undeveloped land for that purpose.

As the trial court recognized, courts have traditionally used three methods of determining fair market value of real property: (1) market data approach based on comparable sales; (2) income-capitalization approach; and (3) reproduction cost, less depreciation. See 4 Nichols, The Law of Eminent Domain § 12.323 (3d ed. rev. 1981); B. Palmer, Palmer's Manual of Condemnation Law § 40 (1961). Of these, only comparable sales have been employed for unimproved property. Appellants claim, however, that comparable sales on which to base an opinion as to value are unavailable. The subject property is uniquely situated with creek frontage, trees, and natural scenic beauty in an area of heavy housing demand and convenient location. The county's witnesses described sales of comparable parcels on which they based opinions of the value of the subject property; on cross-examination, however, the properties to which the comparisons were made were shown to lack desirable features of the subject property. Appellants' witnesses testified that the comparable properties were so different that comparison was meaningless, and reached their own valuation opinions using the development cost approach instead.

The development cost approach is designed to reflect, through cash flow analysis, the current price a developer-purchaser would be warranted in paying for the land, given the cost of developing it and the probable proceeds from the sale of developed sites.¹ American Institute of Real Estate Appraisers, The Appraisal of Real Estate, 140 (7th ed. 1978).

Appellants' witnesses were permitted at trial to give their opinions as to the value of the property, as well as a general description of the development cost approach by which they appraised the property. They were not, however, permitted to discuss the numerical data or analyses underlying their opinions. We believe the evidence supporting the development cost approach should have been admitted in this case. In holding that the prejudicial speculation of this type of testimony outweighed its probative value, the trial court noted that "there is an inherently speculative quality to the developmental approach to market value when the subject acreage is essentially raw, undeveloped land." In reaching this position, the trial court relied on State v. Malecker, 265 Minn. 1, 120 N.W.2d 36 (1963).

In Malecker, the owner of a large tract of rural property sought to calculate his damages resulting from the condemnation of a portion of his property by aggregating the individual diminutions in value for each of the 131 lots on an unregistered plat of the remainder. In affirming the lower court's exclusion of evidence under this "lot method" approach, this court offered four major objections to this form of evaluation:

1. The fair market value should reflect the "selling of the entire property as one big unit rather than selling the individual lots separately."

2. The cost of improving and preparing the land cannot be ignored because the landowner would otherwise receive a windfall.

3. The jury should not be concerned "with all of the uncertain costs of advertising, brokers\' commissions, taxes, utilities, grading, and improvements which a protracted lot-by-lot sales campaign would inevitably require."

4. The land involved was raw, undeveloped land as opposed to unoccupied city property which implies that some potentiality of development must be shown.

Id. at 3-8, 120 N.W.2d at 38-40.

The "development cost approach" clearly satisfies the first two requirements of Malecker — the market value calculation assumes a single sale of the property to a developer and makes corresponding adjustments for the costs of preparing, improving, and selling the property. See footnote 1 above, steps 5 through 8.

The third requirement seeks to protect juries by declaring that evidence of the underlying facts and data of the development cost approach is "per se" speculative and thus inadmissible. However, as pointed out by Judge Parker's...