State v. Wilson

• Decision Date: 18 February 1972
• Docket Number: No. 454--II,454--II
• Parties: The STATE of Washington, Respondent, v. Lawrence M. WILSON and Colette G. Wilson, husband and wife, Appellants.
• Court: Washington Court of Appeals

Page 443

6 Wn.App. 443

493 P.2d 1252

The STATE of Washington, Respondent, v. Lawrence M. WILSON and Colette G. Wilson, husband and wife Appellants.

No. 454--II.

Court of Appeals of Washington, Division 2.

Feb. 18, 1972.

Glenn E. Correa, Shelton, for appellants.

Slade Gorton, Atty. Gen., John J. Champagne, Asst. Atty. Gen., Tumwater, for respondent.

ARMSTRONG, Judge.

This is an action in eminent domain for the acquisition of a parcel of improved land for the construction of a state building in the City of Olympia. The land involved had been owned, used and occupied by the appellants, Dr. and Mrs. Lawrence M. Wilson, for Dr. Wilson's medical office and for apartment rentals. The case comes to us on a short record containing only the testimony of Dr. Wilson.

The assignments of error limit our consideration to whether the trial court was in error in excluding the valuation testimony of the owner and in comments made to the jury with reference to excluding the owners' valuation figure. The only testimony stricken related to the valuation figure and the element of cost of replacement as a basis for that valuation figure. In striking that testimony the court held that the owner had determined the value of the property upon the application of an improper formula--the replacement cost of his medical office and apartments.

In 1947 Dr. Wilson purchased and remodeled a residence on Capitol Way. The existing building was converted into a physician's office and 2 apartments. He described in detail the remodeling and reconstruction of the building to convert it to suit his purposes. He had 7 examining rooms, each of which was equipped with wash basins. His laboratory was equipped for the storage of vaccines and for the sterilization of instruments. The apartments rented for $200 a month. His ownership involved 130 feet on Capitol Way and was 80 feet deep. It was a convenient location to serve his state house clientele. Dr. Wilson testified that he had investigated the valuations of property of comparable value in the neighborhood.

An objection was sustained to an attempt to establish the cost of his investment in his medical office and apartment facility. Thereafter, the following statements, questions and answers occurred in direct examination:

THE COURT: You can ask him, Mr. Correa, as to what his opinion as a land owner is as to the value of his property and perhaps then determine if he knows how he arrived at this figure but at this time I will sustain the objection.

Q. (BY MR. CORREA) Then I will ask you, Doctor: Do you have an opinion as to the fair market value of this property, of your property that is involved in this litigation, at the present time as of today?

A. Well, I am not an expert in this and I don't pretend to be. All I can go by is some reasonable cost of replacement. I understand the state does not, or the law does not permit cost of replacement.

Q. Well, do you have such an opinion?

A. I would say $75,000.

The following questions and answers appear in cross examination:

BY MR. CHAMPAGNE:

Q. Doctor Wilson, the $75,000 that you have testified to as the fair market value of the property, is that based upon what it would cost you to replace that and find a new location?

A. In that neighborhood, yes. That's what my findings were, trying to replace in that neighborhood. That was what I considered a comparable corner, comparable on the basis of the County Assessor's opinion of valuation, comparable vaulation.

Q. Doctor, you arrived at the valuation of your property of $75,000, is that right, and I'm not quite sure that I understand how you arrived at that. I wonder if you could tell the court and the jury.

A. By considerable checking of properties in the area, by actually having estimates on what alterations would have to be done to give me an office to practice and what the cost of this would be, and the best figure I could arrive at was this $75,000.

The following redirect testimony was presented:

Q. Doctor Wilson, for the record, using the basis of your opinion as a property owner of the value of your property without any other consideration that is involved in this litigation other than what you feel the property itself is worth at fair market value, would you state at this time what is in your opinion the fair market value?

A. $75,000.

The following question and answer appear in recross examination Q. In other words, you arrived at your estimate of the $75,000 by going out and finding what it would cost you to replace the facility that you have there?

A. Yes.

The trial court struck the valuation testimony of the owner and excluded it from the consideration of the jury because the owner based his valuation on replacement cost. In doing so the court relied upon the rule of State v. Larson, 54 Wash.2d 86, at page 88, 338 P.2d 135, at page 136 1959), where the court stated:

An owner of property may testify as to its value (without qualifying as an expert), upon the assumption that he is particularly familiar with it and, because of his ownership, knows of the uses for which it is particularly adaptable. Weber v. West Seattle Land & Imp. Co., 188 Wash. 512, 63 P.2d 418 (1936). However, when, as here, the owner has not used his intimate experience with and knowledge of the land's uses as a basis for determining its fair market value, but has obviously determined it upon the application of an improper formula, his opinion fails to meet the test and, therefore, has no probative value.

In Larson the court held that it was improper to determine the fair market value of a gravel pit solely upon a formula of the number of yards of gravel in place, multiplied by the market value of gravel per yard--a clearly improper formula. In this case the owner of the property relied upon reproduction cost, which he termed cost of replacement. Replacement or reproduction cost of improvements on property, less depreciation, may be considered as such cost affects the fair market value of the property as a whole. The questions before us relate to whether the testimony of reproduction cost in this case is relevant, absent a showing of the depreciation of the property, and whether reproduction cost can be considered the sole determining factor in the determination of market value. Inherent in our consideration is the factual question of whether the owner did determine his market value figure solely upon replacement or reproduction cost.

We begin our considerations with the well recognized principle that under our constitution, private property may not be taken for public use without the payment of just compensation. Just compensation is the fair market value of the property, taking into consideration as part of the property such improvements as have become permanently affixed thereto, measured as of the date of trial. Ham, Yearsley & Ryrie v. Northern Pac. Ry. Co.,107 Wash. 378, 181 P. 898 (1919).

Fair market value is the amount of money which a well informed purchaser, willing but not obliged to buy the property would pay, and which a well informed seller, willing but not obliged to sell it would accept, taking into consideration all uses to which the property is adapted and might in reason be applied. Donaldson v. Greenwood, 40 Wash.2d 238, 242 P.2d 1038 (1952).

In determining fair market value in eminent domain cases, several factors have been frequently considered: sales of similar property in the market, ¹ rental value of the property, ² and the reproduction or replacement cost less depreciation. ³

In appraising realty containing a business structure, expert real estate appraisers frequently use 3 approaches to the determination of fair market value:

1. The current cost of reproducing a property less depreciation from deterioration and functional and economic obsolescence.

2. The value which the property's net earning power will support, based upon a capitalization of net income.

3. The value indicated by recent sales of comparable properties in the market.

American Institute of Real Estate Appraisers, The Appraisal of Real Estate 60 (5th ed. 1967).

Each of these approaches is but a method of analyzing data to arrive at the fair market value of the real property as a whole.

We next turn to an analysis of the owner's testimony to determine the basis of his valuation. Although he described the property in detail, its uses and rental value, it is obvious that he based his valuation on the sole factor of cost of replacement of his facility on another location in the neighborhood. At one point his counsel endeavored to rehabilitate him by asking him to restrict his consideration to his opinion as a property owner and he then valued the property at $75,000--the same valuation he had arrived at on a replacement basis. On recross examination he stated that he had determined the valuation figure by determining the cost of replacing the facility he had. This was more than a mere inconsistency in the owner's testimony. Furthermore, it was not a case where the cross examiner planted the idea of cost of reproduction or replacement as the sole basis for the owner's valuation because in his first answer on direct examination the owner stated, 'All I can go by is some reasonable cost of replacement.' Reading the questions and answers as a whole leaves no room for a difference of opinion in reasonable minds--the owner's valuation testimony was based upon cost of replacement alone.

We are, therefore, faced with the question of whether a determination of value may be placed solely upon reproduction cost of a business...