The Law

Appraising the Situation by Ron Davis An appraisal of a Minnesota shopping center that aims to reduce the property’s tax bill has flunked a major test. The shopping center is The Shoppes of Woodbury Village, located in the Minneapolis-St. Paul area. And the attempt to lower the tax bill results from a disagreement by the center’s owners with the county tax assessor. The owners apparently believe that the assessor placed an excessive value on the property. That means a higher tax bill for the owners. So they hired a fully qualified independent appraiser to determine the property’s value. And just as the owners had hoped, that appraiser found that the county tax assessor had erred significantly in his calculations. In 2008, for example, the county tax assessor had valued the property at $4,870,300. But the independent appraiser concluded that the true value that year was only $3,465,000. Similarly, the two appraisals differed widely in their estimates for the previous two years. As for the shopping center’s hired appraiser, he used three basic approaches to finding the value of the property. But he admitted that he considered an income approach the most reliable. Under the income approach, the appraiser attempts to determine the value of the property by calculating the current worth of the future rights to income. That means considering the anticipated market level of rent, less the market level of expenses. Afterwards, however, the county tax assessor argued that the income approach was faulty. The assessor pointed out, for example, that the appraiser for the center did not use any shopping centers in the county for certain important comparisons. Moreover, the assessor noted, the appraiser used figures from shopping centers that were, in some cases, built decades prior to construction of The Shoppes of Woodbury Village. The county assessor similarly criticized the other approaches taken by the appraiser as inaccurate or incompatible. With a sales-comparison approach, for example, the county assessor observed that the properties indicated in the comparison had different uses and were of different sizes than The Shoppes of Woodbury Village. A Minnesota tax court ruled in favor of the county, explaining, “All [the property appraiser’s] approaches were significantly flawed. We cannot arrive at a conclusion of value for the subject property using his analysis. Here, the shopping center’s owners have failed to meet the burden of proof to establish that the subject property was over-assessed. Thus, we affirm the county assessor’s estimated market value for January 2, 2006, January 2, 2007, and January 2, 2008.” (The Shoppes of Woodbury Village v. County of Washington, 2009 WL 3837267 [Minn. Tax Regular Div.]) Decision: November 2009 Published: December 2009