SC Administrative Law Court Decisions

This matter is before the Administrative Law Judge Division ("ALJD") upon a request for a de novo contested case hearing, pursuant to S.C. Code Ann. § 12-60-2540(A) (Supp. 1995), by the Charleston County Assessor ("Assessor") following a decision of the Charleston County Board of Assessment Appeals ("Board") involving the 1994 assessed value of a parcel in Charleston County, TMS #559-00-00-098, owned by KJB Investment Corporation ("KJB"). The Assessor initially valued the property at $50,500. He now contends that the property's fair market value for tax year 1994 is $110,000. The Board found the value of the subject property to be $30,000. KJB maintains that the Board's valuation is correct. A hearing was held on June 24, 1996, at the Charleston County Judicial Center. Based upon the relevant evidence and applicable law, the fair market value of the subject property for tax year 1994, is $30,000.

DISCUSSION

This case requires the Court to determine the extent a property's zoning classification affects the property's highest and best possible use for fair market valuation purposes. It is undisputed that the subject property is best suited for commercial use; however, the property is currently zoned for residential use only. Both parties presented expert evidence of the value of the subject property. Each of the appraisals were based upon a direct sales comparison approach, utilizing recent sales information of comparable properties in proximity to the subject property. The Assessor's appraiser presented only commercial property sales, while KJB's appraiser used only residential comparables.

The Assessor's valuation is based upon the subject property's potential for commercial development and the belief that the property can and will be rezoned for commercial use. KJB maintains that while the property is an ideal site for commercial development, it is not currently legally capable of being used for anything but residential purposes, and therefore can be valued only in terms of residential use.

Under S.C. Code Ann. § 12-37-930 (Supp. 1995), the measure of value for taxation purposes is fair market value. Fair market value of a parcel is:

. . . the price which the property would bring following reasonable exposure to the market, where both the seller and the buyer are willing, are not acting under compulsion, and are reasonably well informed of the uses and purposes for which it is adapted and for which it is capable of being used.

S.C. Code Ann. § 12-37-930 (Supp. 1995).

Use of a property is the determining factor in deriving its fair market value. Lindsey v. S.C. Tax Comm'n, 302 S.C. 504, 397 S.E.2d 95 (1990).

The subject property, TMS #559-00-00-098, is a vacant lot owned by KJB. It is located in Charleston County at 1621 Mathis Ferry Road across the street from Wando High School. The subject property is within the municipality of Mount Pleasant and subject to its zoning laws. The neighborhood is predominately residential in nature but is becoming increasingly commercial.

The highest and best use of the subject property is some type of commercial development; however, it is incapable of being used for that purpose under current zoning restrictions.

The 1992 Town of Mount Pleasant Master Plan, a proposed neighborhood land use plan, identifies the subject property as best suited for business/office use; however, the property has always been and remains zoned R-1, for residential use only. Unless or until the Master Plan is adopted by the town, a spot zoning change is required to alter the subject property's zoning classification. Developers seeking to build a mall on the site in the 1980's were unsuccessful in an attempt to change the subject property's zoning classification. Because of current zoning restrictions and the subject property's history in zoning matters, it cannot be assumed that the subject property's classification will be altered any time soon. The question is in the hands of the Town of Mount Pleasant and its zoning board.

A reasonably well-informed buyer would be aware of the property's zoning classification and record and would weigh the likelihood of having the classification changed to allow commercial development in calculating a reasonable offering price for the parcel. The best set of comparable sales which could have been submitted to the court to provide an accurate basis for valuation would have been vacant parcels currently zoned residential but purchased for commercial development. Neither party submitted any comparables fitting that description. The assessor's comparables are purely commercial and KJB's are strictly residential. KJB's appraiser did not consider commercial usage whatsoever in his valuation. Conversely, the assessor's appraiser did not consider the residential classification of the parcel. While current zoning classification is not necessarily the only factor to be considered to determine a parcel's highest and best use, it is significant. Legally, the subject property is capable of use only as a residence. A buyer may recognize the lot's potential and desirability as a commercial site, but one intending to develop the parcel for commercial use assumes the risk that the property may not be rezoned.

An accurate fair market valuation of the parcel must include consideration of existing land use regulations and the reasonably probable modification of those restrictions. Because, as of December 31, 1993, the subject property could legally be used for residential purposes only and any future use as a commercial site is speculative, the residential classification of the subject property must be considered. Based upon the unsuccessful attempt to previously rezone the parcel, future success in rezoning cannot be assumed. The only evidence presented at the hearing as to the subject property's residential value indicates that its fair market value for tax year 1994 is $30,000.

FINDINGS OF FACT

1. The subject property is an unimproved residential lot owned by KJB.

2. The subject property, TMS #559-00-00-098, is a vacant, irregularly shaped parcel in Charleston County in Mount Pleasant at 1621 Mathis Ferry Road.

3. As part of a county-wide program, the subject property was reassessed by the Assessor's Office for the 1993 tax year at $50,500.

4. The Assessor's valuation of the subject property remained at $50,500 for tax year 1994.

5. KJB purchased the subject property, along with several other parcels, in 1993.

6. KJB requested and received review of the 1994 tax year assessment by the Assessor's Office and the Charleston County Board of Assessment Appeals.

7. Following a conference on November 9, 1994, between KJB and Linda M. Burnett of the Assessor's Office, the Assessor's valuation remained unchanged.

8. Following a conference on November 1, 1995, the Charleston County Board of Assessment Appeals valued the subject property at $30,000.

9. By notice and request filed November 29, 1995, the Assessor requested a contested case hearing before the Administrative Law Judge Division.

10. A contested case hearing was held at the Charleston County Judicial Center on June 24, 1996.

11. The subject property is zoned R-1, for residential use only.

12. The highest and best use of the subject property is as a commercial business/office development; however, it is incapable of being used for that purpose under current zoning restrictions.

13. Based upon a detailed sales comparison approach appraisal performed by Donald F. Stewart of the Assessor's Office, subsequent to the initial appraisal performed as part of the county-wide reassessment, the Assessor now asserts that the subject property is valued at $110,000.

14. Stewart's comparables are purely commercial properties. Stewart's valuation did not consider the residential classification of the parcel.

15. Two of Stewart's comparables are identified in his appraisal report with erroneous TMS numbers, making them unreliable indicators of commercial value.

16. Based upon a detailed sales comparison approach appraisal performed by Stephen C. Attaway, KJB asserts that the subject property is valued at $30,000.

17. The comparables submitted by Attaway are strictly residential properties. Attaway did not consider commercial usage in his valuation.

18. The 1992 Town of Mount Pleasant Master Plan, a proposed neighborhood land use plan, identifies the subject property as best suited for business/office use, but the plan's suggested zoning classification has not been adopted for the subject property.

19. Developers seeking to build a mall on the site in the 1980's were unsuccessful in an attempt to change the subject property's zoning classification.

20. Unless or until the 1992 Town of Mount Pleasant Master Plan is fully adopted, a spot zoning change is required to alter the subject property's zoning classification.

21. Because of current zoning restrictions and the subject property's history in zoning matters, it cannot be assumed that the subject property's zoning classification will be altered to allow commercial development.

22. A reasonably well-informed buyer would be aware of the property's zoning classification and record and would weigh the likelihood of having the classification changed to allow commercial development to ascertain a reasonable offering price for the parcel.

23. No comparable sales of vacant parcels currently zoned residential but purchased for commercial development are available to provide an accurate basis for valuation of the subject property.

24. As of December 31, 1993, the subject property was legally capable of residential use only.

25. Based upon the subject property's current zoning classification and record and the necessity to rezone the parcel before commercial development is possible, the commercial use and value of the subject property is speculative.

26. Because the only evidence of value of the subject property presented to the Court recognizing the current residential classification is the Attaway appraisal and becausethe Assessor does not dispute Attaway's calculations for residential value, the subject property's fair market value for tax year 1994 is $30,000.

CONCLUSIONS OF LAW

1. The Administrative Law Judge Division has jurisdiction over the issues and parties involved in this contested case pursuant to S.C. Code Ann. §§ 1-23-600 and 12-60-2540(A) (Supp. 1995).
2. All real property in the State of South Carolina is subject to taxation, S.C. Code Ann. § 12-37-210 (1995). Taxes are levied in the amount of six percent of the fair market value and must be paid by the individual owning the property. S.C. Const. art. X, § 1 (Supp. 1995); S.C. Code Ann. § 12-37-610 (1995).
3. Under S.C. Code Ann. § 12-37-930 (Supp. 1995), the measure of value for taxation purposes is fair market value. Lindsey v. S.C. Tax Comm'n, 302 S.C. 504, 397 S.E.2d 95 (1990); 84 C.J.S. Taxation § 411 at 791 (1954).
4. Fair market value of a parcel is:
   . . . the price which the property would bring following reasonable exposure to the market, where both the seller and the buyer are willing, are not acting under compulsion, and are reasonably well informed of the uses and purposes for which it is adapted and for which it is capable of being used.
   S.C. Code Ann. § 12-37-930 (Supp. 1995).
5. In estimating the value of land, all of its elements or incidents which affect market value or would influence the mind of a purchaser should be considered, such as location, quality, condition, and use. 1969-70 Op. S.C. Att'y. Gen., No. 3045 at 337; See also 84 C.J.S. Taxation § 410 at 784; § 411 at 794 (1954).
6. To determine a fair market price for the subject property, comparisons of the sale price of other properties of the same character may be utilized. See Cloyd v. Mabry, 295 S.C. 86, 367 S.E.2d 172 (Ct. App. 1988); 84 C.J.S. Taxation §§ 410-411 at 785, 797 (1954).
7. While it is impossible to predict with certainty what a particular property will sell for, utilizing comparable sales may be an indicator of what a potential purchaser will likely pay. That is, utilizing comparables present probative evidence of the market value of the subject properties if the comparables are similar in character, location, and physical characteristics. See 84 C.J.S. Taxation § 411 (1954).
8. If there are no comparable sales or recent sales to form a basis of comparison, a fair market value may be determined by the testimony of persons acquainted with the property who have knowledge and experience qualifying them to form intelligent judgment as to the proper valuation of the property. See Appeal of Hart, 199 A. 225, 131 Pa. Super. 104 (1938).
9. "Appraisal is, of course, not an exact science and the precise weight to be given to any factor is necessarily a matter of judgment, for the court, in the light of the circumstances reflected by the evidence in the individual case." Santee Oil Co., Inc. v. Cox, 265 S.C. 270, 217 S.E.2d 789 (1975).
10. Where an expert's testimony is based upon facts sufficient to form the basis for an opinion, the trier of fact determines its probative weight. Berkley Elec. Coop. v. S.C. Public Serv. Comm'n, 304 S.C. 15, 402 S.E.2d 674 (1991); Smoak v. Liebherr-Am., Inc., 281 S.C. 420, 422, 315 S.E.2d 116, 118 (1984).
11. A trier of fact is not compelled to accept an expert's testimony, but may give it the weight and credibility he determines it deserves and may accept the testimony of one expert over another. Florence County Dep't of Social Serv. v. Ward, 310 S.C. 69, 425 S.E.2d 61 (1992); Greyhound Lines v. S.C. Public Serv. Comm'n, 274 S.C. 161, 262 S.E.2d 18 (1980); S.C. Cable Tel. Assn. v. Southern Bell Tel. and Tel. Co., 308 S.C. 216, 417 S.E.2d 586 (1992).
12. The effect of all relevant factors is considered as of December 31, 1993, to determine the fair market value of the parcel for tax year 1994. The factors considered include the size, location, access, visibility, and the highest and best use of the subject property. Any one or a combination of these factors have the potential to affect fair market value of the subject property.
13. As of December 31, 1993, the subject property was legally capable of residential use only.
14. While current zoning classification is not necessarily the only factor to be considered to determine a parcel's highest and best use, it is significant. A buyer may recognize the lot's potential and desirability as a commercial site, but one intending to develop the parcel for commercial use assumes the risk that the property may not be rezoned.
15. Because of the subject property's desirability and potential for commercial development, but the residential zoning classification and record of the subject property, the Court lacks any truly comparable sales for a comparison valuation.
16. Based upon the following factors, the subject property's fair market value for tax year 1994 is $30,000:

(a) The only evidence of value of the subject property presented to the Court recognizing the current residential classification is the Attaway appraisal;

(b) The commercial use and value of the subject property is speculative; and

(c) Attaway's calculations for residential value are undisputed.

ORDER

Based upon the foregoing Findings of Fact and Conclusions of Law, I find that for tax year 1994 and succeeding years until reassessed, the fair market value of the subject property, Charleston County TMS #559-00-00-098, is $30,000.

AND IT IS SO ORDERED.

_____________________________________

STEPHEN P. BATES

ADMINISTRATIVE LAW JUDGE

Columbia, South Carolina

September 5, 1996