ORDERS:
FINAL ORDER AND DECISION
This is a contested case brought by Petitioner (taxpayer) against the Charleston County Assessor ("assessor")
concerning a property valuation for 8 Wesley Drive, Charleston, South Carolina, Charleston County PID #93/421-06-00-099, for tax year 1993. The taxpayer exhausted all prehearing remedies with the assessor and the Charleston County
Board of Assessment Appeals and has requested a contested case hearing before the Administrative Law Judge Division
(ALJD). The ALJD has jurisdiction in this matter pursuant to S.C. Code Ann. 12-60-2540 (Supp. 1995). A hearing was
held at the Charleston County Judicial Center on October 3, 1996. Upon consideration of the evidence and oral
arguments presented by the parties and the applicable law, I conclude the subject property must be valued at
$75,230.
ISSUES
There are two fundamental issues in this case:
(1) Which is the most appropriate method of valuation for the subject property?
(2) Using the most appropriate method of valuation, what is the correct valuation
of the subject property for tax year 1993?
DISCUSSION
The subject property is used as a multi-family rental property consisting of a duplex and detached garage
apartment. The assessor asserts the best valuation is derived by use of a gross rent multiplier (GRM) multiplied by
the gross monthly market rent of the units minus the cost to cure functional obsolescence and physical deferred
maintenance. Under the assessor's formula, a value of $83,000 is asserted. The taxpayer argues that the GRM method
of valuation is not appropriate for valuation of the subject property and that the assessor's comparables presented
under the GRM appraisal are not truly comparable. The taxpayer asserts that the income capitalization approach is
better suited to value the subject property. Under the taxpayer's calculation, the subject property must be valued at
$61,750. I conclude that the income capitalization approach is the more suitable method of valuation in this instance;
however, I disagree with the taxpayer's calculation of the property's net operating expenses and required yield. Under
an objective utilization of the income approach, the value of the subject property for tax assessment purposes for tax
year 1993, is $75,230.
FINDINGS OF FACT
I find, by a preponderance of the evidence, the following facts:
1. The taxpayer is the owner of real estate consisting of land with improvements comprised of a two-story
duplex and detached garage apartment, all three used as residential rental units.
2. The subject property is located in Charleston County, South Carolina, at 8 Wesley Drive, Charleston, South
Carolina, and is identified on the Charleston County Tax Map as PID
# 93/421-06-00-099.
3. The assessor determined the value of the subject property to be $83,000.
4. The Charleston County Board of Assessment Appeals determined that the subject property's fair market value
for tax year 1993 was $83,000.
5. The taxpayer asserts the property must be valued at $61,750 for tax year 1993.
6. The taxpayer purchased the subject property for $61,750 in 1988.
7. The taxpayer derives rental income from the subject property.
8. The existing use of the subject property, as well as the past and intended future use, is as multi-family
rental property, consisting of three separate units.
9. The highest and best use of the subject property is multi-family rental income property.
10. The upstairs unit of the duplex contains approximately 918 square feet of living space, including two
bedrooms and one bath, and generates a monthly rent of $370.
11. The downstairs unit of the duplex contains approximately 1,431 square feet of living space, including two
bedrooms and one bath, and generates a monthly rent of $490.
12. The detached garage apartment contains approximately 525 square feet of living space, including one
bedroom and one bath, and generates a monthly rent of $265.
13. The market sales approach does not provide the most accurate measure of value for the taxpayer's property.
14. Because of the multi-family rental use of the subject property, the market sales method of valuation is not
practical.
15. Assessor's Gross Rent Multiplier (GRM) method of valuation does not provide the most accurate measure of
value for the taxpayer's property.
16. Because of the multi-family rental use of the subject property, the lack of comparable multi-family rental
property sales, and the unreliability of the resulting GRM's from the assessor's comparables, the Gross Rent
Multiplier (GRM) method of valuation is not practical.
17. The best and most accurate method of valuation of the subject property is the direct capitalization method,
utilizing net operating income figures for the triplex multiplied by a capitalization rate to reach fair market
value.
18. Based upon taxpayer's federal income tax returns, the income derived and expenses incurred from the rental
of the subject property for 1989-1995, is as follows:
| Gross income | Pre-tax oper. expenses | Net operating income
|
1989 | 13,833 | 6,231 | 7,602
|
1990 | 13,000 | 3,362 | 9,638
|
1991 | 11,583 | 5,087 | 6,496
|
1992 | 12,923 | 5,516 | 7,407
|
1993 | 13,550 | 4,162 | 9,388
|
1994 | 13,262 | 7,758 | 5,504
|
1995 | 12,634 | 6,011 | 6,623
|
Average | 12,969 | 5,447 | 7,523
|
19. The taxpayer submits that a capitalization rate of 12% is appropriate, based upon the age, condition,
location, and tenant turnover rate of the subject property.
20. On or about the date of purchase of the subject property, the taxpayer prepared an Investment Analysis and
Operating Statement as of January 1, 1989, in which he estimated the annual yield of the investment would
be between 10.10% and 9.04%.
21. Based upon the taxpayer's own yield estimate, upon which he undertook the risk of the investment, 10% is a
reasonable overall capitalization rate for the subject property.
22. The total annual pre-tax net operating income of the subject property ($7,523) multiplied by the overall
capitalization percentage rate (10), equals a value of $75,230.
23. The fair market value of the subject property for tax year 1993 is $75,230.
CONCLUSIONS OF LAW
Based on the foregoing Findings of Fact, I conclude the following as a matter of law:
1. All property shall be valued for taxation purposes at its true value in money, which in all cases shall be held to be
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 as to 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).
2. Fair market value is the measure of true value for taxation purposes. Lindsey v. S.C. Tax Comm'n, 302 S.C. 504, 397
S.E.2d 95 (1990).
3. Gross rent multipliers are used to compare income-producing characteristics of properties in the sales comparison
approach. See The Appraisal of Real Estate, p. 476 (American Institute of Real Estate Appraisers 10th ed.).
4. "Appraisers who attempt to derive and apply gross income multipliers for valuation purposes must be careful . . . that
the properties analyzed are comparable to the subject [properties] and to one another in terms of physical, locational,
and investment characteristics. Properties with similar or even identical multipliers can have very different operating
expense ratios and, therefore, not be comparable for valuation purposes." Id. at 476.
5. While fair market value can be determined under the market sales comparison approach, an income analysis is a
reliable means for valuing apartments. Bornstein v. State Tax Comm'n, 176 A.2d 859 (Md. 1962).
6. The income approach seeks to determine the present value of future benefits of property ownership with such value
determined generally by the net income an informed buyer believes the property will produce during its remaining
useful life. See The Appraisal of Real Estate, supra, p. 413.
7. The actual earnings from a property are entitled to great consideration in valuation. S.C. Tax Comm'n v. S.C. Tax Bd.
of Review, 287 S.C. 415, 339 S.E.2d 131 (1985).
8. Direct capitalization is used to convert an estimate of a single year's income expectancy into an indication of value
for an income producing property in one step, using the following formula:
Value = Net operating income / Overall capitalization rate
The Appraisal of Real Estate, supra at 467.
9. Using the direct capitalization income approach, the property identified as PID #93/421-06-00-099 is valued at
$75,230 for tax year 1993.
10. 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. 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).
11. Any issues raised in the proceedings or hearing of this case but not addressed in this Order are deemed denied. ALJD
Rule 29(B).
ORDER
The assessor shall value the taxpayer's property, identified as Charleston County PID
#93/421-06-00-099 at a value of $75,230 for assessment year 1993.
AND IT IS SO ORDERED.
__________________________________
STEPHEN P. BATES
ADMINISTRATIVE LAW JUDGE
November 15, 1996
Columbia, South Carolina |