State v. Waller

• Decision Date: 27 February 1981
• Parties: STATE of Alabama v. Charles L. WALLER, Jr., Allyce K. Waller, Chas. Waller Advertising, Inc. and Ralph W. Havard, Tax Collector. 79-284.
• Court: Alabama Supreme Court

Page 37

395 So.2d 37

STATE of Alabama v. Charles L. WALLER, Jr., Allyce K. Waller, Chas. Waller Advertising, Inc. and Ralph W. Havard, Tax Collector.

79-284.

Supreme Court of Alabama.

Feb. 27, 1981.

William H. McDermott, Sp. Asst. Atty. Gen., Mobile, for appellant.

Ray G. Riley, Jr. of McFadden, Riley & Parker, Mobile, for appellees.

ALMON, Justice.

This is an appeal from a judgment in a condemnation proceeding. We affirm.

Charles Waller Advertising, Inc., appellee, owned two parcels of land which abutted Interstate 10 in Mobile County. A billboard owned and maintained by Waller was located on Parcel 1; Parcel 2, situated on the opposite side of Interstate 10, was vacant. In 1976, five years after the billboard was erected on Parcel 1, the State of Alabama, appellant, acquired both parcels by eminent domain. Waller appealed the Probate Court award to the Circuit Court, wherein a jury awarded compensation in the amount of $29,500.00.

The State raises six issues on appeal, four of which relate to the admission of appraisal evidence based upon the income or capitalization approach to valuation. The other issues focus upon an allegedly misleading charge, and the failure to set aside the verdict as excessive and/or grant a new trial.

The State contends evidence of rental income and valuation by the income approach is inadmissible as a matter of law in a condemnation proceeding when the income is generated by a single signboard. We pretermit discussion of this issue. The existence of the income approach as a method of appraising property and the calculations involved in that approach was first injected into the trial during direct examination of the State's expert witness, James Thames:

Q. All right. Will you tell us briefly the general approaches for the appraisal of real estate in your profession?

A. Well, the three basic approaches to the evaluation of real estate are the cost approach, which is where the appraiser uses the reproduction costs of the building improvements and depreciates those improvements for whatever age and condition might be at the time of appraisal, and then you add the land value, estimated land value to that figure, and you come up with a total value for the property through the cost approach. The second accepted approach is the market data approach where the (appraiser) goes into the market area, generally the subject property being located within, and you find sales of vacant land or either improved properties, to which you make a comparison to your property that you are appraising, and you make various adjustments to those sales, differences in location, construction quality and features, size of utility, if it's vacant land, and etc., to finally determine what your adjusted value of the subject property would be, based on your analysis of your comparable sales. The third approach we use is the income approach, and this method is used where generally we have income producing properties such as commercial buildings and we take the gross income the property produces and generally we deduct normal allowances for vacancy and credit loss and we come up with what we call effective gross income and from appropriate gross income we normally deduct all items and expenses that are necessary to the operation of the real estate, in order to arrive at what we call net income, and the net income figure is what we use to capitalize by a sufficient rate to determine what the overall value of the property would be through the income approach.

After reviewing the two alternate methods of valuation and the results reached thereby, counsel for the State returned to the income approach:

Q. Now, Mr. Thames, did you arrive at an opinion of a fair market value of the property under an income approach here?

A. I did.

Q. In your opinion did it fairly demonstrate the fair market value of the subject property?

A. I think it did.

Q. The income approach?

A. Yes, sir.

This testimony was developed a few moments later:

Q. All right, ... Mr. Thames, will you tell us how you approached and analyzed the income approach?

A. Well, based upon my readings of (a publication promulgated by the American Institute of Real Estate Appraisers), normally, outdoor advertising signs are not bought and sold on an individual basis. They are generally bought and sold on their total income productivity from the whole operation of the company, and in doing that they have found in the market within larger metropolitan areas other than this area, that outdoor advertising sign companies have sold on what they call a gross income multiplier of one and a half to three times their gross collectible income. So, what I generally did was, I just took the income estimated on this particular sign board, which was $300.00 a month, and deducted a normal figure for vacancy and credit loss of fifteen percent to arrive at an effective gross income in the amount of $3,060.00, and

THE COURT: $3,060.00?

A. Yes, sir.

Mr. Thames detailed this analysis at the request of the trial judge:

WITNESS: All right, sir. O.K. I estimated the monthly rent to be $300.00, and then times twelve months would be an annual income of $3,600.00, of which I deducted 15% for vacancy and credit loss, to arrive at a net effective gross income of $3,060.00, and then I used a multiplier of two times the effective gross income to arrive at a value through the income approach in the amount of $6,100.00.

The attorney for the State continued:

Q. Well, now, so you did apply the multiplier to an individual sign board?

A. Yes.

Q. I had understood you to say that that isn't done. That individual signs are not bought and sold.

A. They are not normally done that way, no sir.

Q. In your opinion, is the income approach followed by you a reliable approach in this case?

A. No, sir.

Q. And tell us why?

A. Well, I have no basis to judge what the judge expenses primarily. I had no way to allocate expenses necessary to the operation of this individual sign. And number two, I had no basis for arriving at a appropriate capitalization rate to apply to the net income to arrive at the value through the income approach. Because these signs are not bought and sold on an individual basis on the open market. They are not mortgaged. You can't borrow money against them, and so I couldn't I really couldn't derive an effective rate to apply to the net income, and foremost, I couldn't judge what expenses would be could be accurately ascertain(ed) to this particular individual sign board without knowing what the total expenses of the whole operation of this particular company would be.

THE COURT: And the number of sign boards they have.

THE WITNESS: Yes, sir. It would be very speculative on my part to try to determine that.

(BY THE ATTORNEY FOR THE STATE):

Q. So, you consider the income approach to be an unreliable approach in this case?

A. Yes, sir.

Direct examination of the State's second expert witness yielded the same opinion, i. e., that the income approach to valuation is not applicable to an individual billboard.

During direct examination of Charles Waller, the president of Waller Advertising, Waller's attorney proffered into evidence a copy of the contract between Waller Advertising and the company which contracted to have its advertisement displayed on Waller's billboard. Counsel for the State objected on the ground that the contract and the terms contained therein would have relevance only to appraisal under the income approach, which he contended was "inapplicable, and irrelevant." This objection, as well as an objection to the admission of an exhibit (Exhibit F) which set forth the computations and results reached under the income approach, was overruled by the trial judge. An objection to a similar chart (Exhibit E) offered during direct examination of another expert witness, Mr. Courtney, was also overruled. Testimony concerning the computations on the chart followed its admission:

Q. Okay. Would you explain to the ladies and gentlemen of the Jury, your computations as shown by the exhibit?

A. Yes, sir. The sign board was earning $300.00 a month, that's $3,600.00 a year. I used a loss of rent and vacancy of two percent. I understand from Mr. Waller that the sign board had never been vacant, but I still think you ought to use some type of vacancy ratio which was gives us a net rent less before expenses of $3528.00. I used the management fee of $176.00; Taxes $20.00, which is what the taxes are. Utilities that's the lights, the sign board runs about $96.00; Maintenance, which I got from Mr. Waller, and also checked out with Lamar Advertising, said this is about right on this type of sign of $180.00. This gives the total expenses of $472.00. This gives a net rent of $3,056.00, and that particular time I thought it a capitalization rate of ten percent was what the market indicated; capitalized that then percent into $3,056.00, gives a total value of.$30,560.00 for the property or rounded off to $30,600.00.

The foregoing excerpts from the record make clear that the State first introduced evidence of both the income approach to valuation and the rental income generated by the property. Even if this evidence were inadmissible, the State cannot be heard to complain of its admission in this case. Peterson v. Jefferson County, 372 So.2d 839...