ORDERS:
FINAL ORDER AND DECISION
I. Statement of the Case
This matter is brought by North Charleston River Place, LLC (River Place) against the Charleston
County Assessor (Assessor) concerning a property value dispute for the property tax year 1997.
River Place exhausted its prehearing remedies with the Assessor and the Charleston County Board
of Assessment Appeals and is now seeking a contested case hearing before the Administrative Law
Judge Division (ALJD). Jurisdiction vests in the ALJD pursuant to S. C. Code Ann. §
12-60-2540(A) (Supp. 1997) with this matter having been heard on September 25, 1998. After
considering all of the evidence and arguments, I conclude the testimony of Stephen Everman
(Everman) as well as the Assessor's appraisal are properly included as evidence in this controversy.
Further, considering the evidence and arguments, the property must be valued at $4,600,000.
II. Issues
1. Should the testimony of Stephen Everman (Everman) as well as the Assessor's appraisal be
excluded from evidence?
2. For the 1997 tax year, what is the value of the property owned by River Place?
III. Analysis
A. Exclusion of Evidence(1)
1. Positions of Parties
River Place argues Everman's testimony should be excluded since "the supervising appraiser, Mr.
[Robert L.] Cale (Cale) is ultimately responsible for the veracity of the appraisal, and therefore only
he is qualified to testify as to its contents." River Place's Post-Trial Brief, p. 2. Further, River Place
argues the appraisal prepared by Everman should also be excluded since Everman's status as an
apprentice appraiser at the time the appraisal was prepared requires exclusion of the appraisal.
The Assessor disagrees. He argues Cale is not the only proper witness. Rather, the testimony of
Everman is proper since Everman has personal knowledge of the property in dispute and is not
otherwise disqualified as a witness. Further, the Assessor argues the appraisal is proper evidence
since Everman operated within his authority as an apprentice appraiser.
2. Findings of Fact:
I find, by a preponderance of the evidence, the following facts:
Everman is an employee of the Charleston County Assessor's Office who performed duties
associated with a valuation of real property owned by River Place for the 1997 tax year. The
property owned by River Place is identified as Saint Charles Place Apartments located at 1920
McMillan Avenue, North Charleston, South Carolina. The apartments have tax map numbers of
469-07-00-002 and 469-07-00-013.
Two employees of the Assessor had primary responsibilities for valuing the Saint Charles Place
Apartments. Everman inspected the apartments; assembled most of the information utilized in
calculating the value of the property; prepared, to a significant degree, the final appraisal; and,
finally, placed his signature on the appraisal as an apprentice appraiser. Robert L. Cale, a certified
residential appraiser employed by the Charleston County Assessor, supervised the appraisal of the
property. In his capacity, Cale supervised Everman, reviewed the appraisal, and signed the appraisal
as the supervisory appraiser.
3. Conclusions of Law
Based on the foregoing Findings of Fact, I conclude the following as a matter of law:
A. No Exclusion of Everman's Testimony
River Place seeks to exclude Everman as a witness related to the appraisal since River Place argues
"only [Cale] is qualified to testify as to its contents." River Place's Post-Trial Brief, p. 2. Under the
facts of this case, Everman's testimony is proper and Everman is a proper witness.
To a large degree, the admission or exclusion of testimony is within the judge's discretionary matter.
See Baber v. Greenville County, 327 S.C. 31, 488 S.E.2d 314, 319 (1997) ("Conduct of trial,
including the admission and rejection of testimony, is largely within trial judge's sound discretion,
the exercise of which will not be disturbed on appeal absent an abuse of that discretion or the
commission of a legal error that results in prejudice for appellant."). Here, the facts of this case
show Everman is well qualified to testify as to the contents of the appraisal.
Here, Everman inspected the property that is the subject of the appraisal; assembled most of the
information relied upon in the appraisal; prepared, to a significant degree, the final appraisal; and,
finally, placed his signature on the appraisal. Certainly, a witness may testify to those matters of
which he has personal knowledge. SCRE Rule 602. Under the circumstances of this case, Everman
does not suffer from a lack of personal knowledge, and SCRE Rule 602 forms no basis for
prohibiting his testimony.
However, even given the requisite personal knowledge, River Place further argues that Cale, and not
Everman, was required to testify about the appraisal since Cale signed the document as a certified
residential appraiser "ultimately responsible for the veracity of the appraisal." I disagree.
The fact that another person may have more information or better training or more experience is not
a basis for excluding evidence but rather is a factor relevant to the weight to be given to such
testimony. See 29A Am. Jur. 2d Evidence § 1431 (1994) (The trier of fact determines the weight
to be given the evidence). Here, as discussed above, Everman was substantially involved in the
preparation of the appraisal and performs his job functions as an appraiser. Accordingly, the fact that
another individual could have been called as a "better" witness is not a basis for excluding the
testimony of Everman. Thus, Everman's testimony is properly received.
B. Exclusion of Appraisal
River Place argues the appraisal prepared by Everman should be excluded due to Everman's status
as an apprentice appraiser at the time the appraisal was prepared. The argument is that Everman was
not legally qualified to perform the appraisal, and, therefore, the appraisal must be excluded. I cannot
agree. On the contrary, Everman was legally capable of performing the appraisal duties assigned to
him in this case.
Here, Everman's duties were to assist Cale, a state certified residential real estate appraiser, in
preparing an appraisal of the rental property in dispute in this matter. Cale's status as a certified real
estate appraiser entitled him to engage in any real estate appraisal activity "which is not prohibited
by federal law or the guidelines established by the appraisal subcommittee." S.C. Code Ann. § 40-60-30(B)(3) (Supp. 1997). In performing his appraisal duties, Cale was not prohibited from
obtaining the assistance of an apprentice appraiser. Indeed, an apprentice appraiser is specifically
authorized to assist a state certified residential real estate appraiser so long as the apprentice is
supervised by the certified appraiser, the appraisal is reviewed by the certified appraiser, and the
certified appraiser signs the appraisal as the supervising appraiser. S.C. Code Ann § 40-60-30(5)(a)
(Supp. 1997).
In this case, the evidence establishes that Everman was supervised by Cale, Cale reviewed the
appraisal, and Cale signed as the supervisory appraiser. Thus, Everman properly and legally carried
out his duties as an apprentice. Therefore, the alleged lack of authority in Everman has not been
proven and is not a basis for excluding the appraisal submitted by the Charleston County Assessor.
Accordingly, the appraisal is properly received as evidence.
B. Valuation of Property
1. Positions of Parties
In several important areas, the parties have reached an agreement on matters that would otherwise
be contested. For example, the parties stipulated that the proper approach for valuing the disputed
property is that of an income approach based upon the capitalization of a stream of income. Finding
no basis for disagreeing with the parties stipulation, this case is decided by examining the factors
pertinent to an income approach to valuation.
Further, not all of the factors pertinent to an income approach are disputed. Rather, the parties have
reached a further agreement. Recognizing that a capitalization of income approach requires
determining the three fundamental factors of effective gross income, reductions for expenses, and
capitalization rate, the parties have agreed on two of these three factors. River Place concedes that
the Assessor is correct in his use of an effective gross income of $1,394,440. Also, River Place
concedes that the use of a capitalization rate of 12.5% is a proper rate for valuing Saint Charles Place
Apartments. Again, finding no compelling reason for disagreeing with the parties stipulations and
concessions, the apartments will be valued utilizing an effective gross income of $1,394,440 and a
capitalization rate of 12.5%.
While an agreement on two of the three factors has been reached, the third factor of reductions for
expenses is not agreed upon. River Place argues the effective gross income should be reduced by
expenses of $1,140,262 so as to produce a rounded value of $2,050,000 for the apartment complex.
The Assessor, however, argues that a reduction for expenses should be given for $822,720 to
produce a rounded value of $4,600,000.(2) Thus, the expense factor is the remaining disputed element
of valuation of Saint Charles Place Apartments.
2. Findings of Fact:
I find, by a preponderance of the evidence, the following facts:
The disputed property, located in North Charleston at 1920 McMillan Avenue, is known as Saint
Charles Place Apartments and consists of 464 apartment units contained within 134 buildings on
41.2 acres of land. The complex was built in 1941. After several changes in ownership, in 1990 the
apartments were owned and operated by the North Charleston Housing Authority as part of an
assistance program to low income families. However, in the face of a foreclosure possibility, the
North Charleston Housing Authority transferred the property in October of 1996 to River Place.
Despite a $7,000,000 repair and renovation to the property in 1991, the units lack many of the
normal conveniences of standard apartments and the 1941 construction date makes the units
expensive to maintain. Unlike modern apartments, these units do not have dishwashers, garbage
disposals, or washer and dryer connections. Further, the three bedroom units have only one
bathroom. Likewise, the age of the units result in a significant maintenance cost.
Given the condition of the facilities actual expenses are relatively high. For example, the actual
expenses for the only recent year of operation by a private entity (i.e., River Place for the 1997 year)
shows operating expenses of $950,486. In addition, adding expenses for reserves of $300 a unit and
taxes of $109 a unit produces an additional expense of $189,776 for a total expense of $1,140,262.
The Assessor agrees that expenses are higher than that normally found in the marketplace. To
determine the expenses in the marketplace, the Assessor computed a ratio of expenses to income
based upon the income and expenses of comparable apartments of significant age. The data
demonstrates a ratio of approximately 51 to 55 percent. The Assessor increased the ratio to 59% to
account for the higher expenses associated with the taxpayer's property.
3. Conclusions of Law
Based on the foregoing Findings of Fact, I conclude the following as a matter of law:
The income approach seeks to determine the value of property by examining the property's income
producing capabilities. Anthony v. Padmar, Inc., 320 S.C. 436, 465 S.E.2d 745 (Ct. App. 1995).
The income producing capabilities of rental property can best be found by applying an appropriate
capitalization rate to the average of the actual net operating incomes for several years. S.C. Tax
Comm'n v. S.C. Tax Bd. of Review, 287 S.C. 415, 339 S.E.2d 131 (1985). Caution must be
exercised in relying solely upon actual operating income since other factors may warrant adjusting
the actual experience to account for additional elements of value not properly reflected. See
Haywood Mall Associates v. South Carolina Tax Com'n, 291 S.C. 411, 353 S.E.2d 890 (Ct. App.
1987) ("We find no error in the appealed order's holding that in the situation before us, the assessor
properly added a factor for tenant improvements to the actual rent received.") Here, the issue is how
best to calculate the net operating income to be capitalized at the 12.5% rate appropriate for this
property.
a. Expenses Determined
While no dispute exists that $1,394,440 is the effective gross income, the taxpayer seeks to arrive
at net income to be capitalized by reducing gross income by the property's purported single year
actual expenses of $1,140,262. The Assessor seeks to reduce gross income by an expense ratio of
59% with that ratio having been derived from data gathered from comparable properties. For two
primary reasons, the 59% ratio is a more reliable indicator of the value of future benefits than is the
single year of actual expenses presented by the taxpayer.
First, the value of future benefits under an income approach is best based upon the average earnings
for a reasonable period of time rather than the income for a single year. Somers v. City of Meriden,
174 A. 184 (Conn. 1934); 84 C.J.S. Taxation, § 411 (1954); Parkway Village Apartments Co. v.
Cranford Tp., 8 N.J.Tax 430, 444 (Tax 1985), aff'd, 9 N.J.Tax 199 (App.Div.1986), rev'd on other
grounds, 108 N.J. 266, 528 A.2d 922 (1987) ("It is clear that an appraiser's function is to reconstruct
a yearly pattern of expenses. Expenses vary from year to year, and it is important to review operating
statements for three or more years in order to determine whether certain expenses are typical or
atypical.").
Here, the taxpayer's expenses reflect only a single year. Prior ownership of the property was in the
hands of a public entity and, therefore, does not afford reliable data for any past years. Indeed, a
single year of private ownership gives some concern that actual expenses for such a start-up year may
not provide a true indication of value. See Haywood Mall Associates v. South Carolina Tax
Com'n, supra. Thus, under the facts of this case, a single year of income and expense is not entitled
to significant weight. On the other hand, significant weight is accorded the Assessor's 59% ratio.
That ratio was derived from actual data for similar apartments that have been operating for a number
of years. Accordingly, of the two approaches, the Assessor's method better represents fair market
value.
Second, while valuation may be based both on what is known and on what is anticipated as of the
assessing date, valuation cannot be premised on hindsight. New Brunswick v. Tax Appeals Div., 39
N.J. 537, 545, 189 A.2d 702 (1963). Here, the taxpayer's expenses rely upon data that did not occur
until 1997. The valuation date is December 31, 1996. See S.C. Code Ann. Sec. 12-37-900 (1976).
Thus, on December 31, 1996, the precise expense data accumulated during 1997 would not have
been available. Therefore, the taxpayer's method is less persuasive than the Assessor's 59% ratio.
b. Value Determined
Given a gross income of $1,394,000, a reduction for expenses of 59%, or $822,720, leaves a net
income of $571,720. That net income capitalized at 12.5% produces a value of $4,572,320.
Accordingly, the fair market value of the property identified as Saint Charles Place Apartments
located at 1920 McMillan Avenue, North Charleston, South Carolina for the tax year 1997 is
$4,600,000.
IV. Order
Based upon the Findings of Fact and Conclusions of Law, it is hereby ordered:
For the 1997 tax year, the Charleston County Assessor shall place a fair market value of
$4,600,000 on the property identified as Saint Charles Place Apartments located at 1920 McMillan
Avenue, North Charleston, South Carolina.
AND IT IS SO ORDERED.
____________________________
RAY N. STEVENS
Administrative Law Judge
Dated: February 1, 1999
Columbia, South Carolina
1. At the hearing, River Place moved to exclude both the testimony of Everman and the
appraisal of the property prepared by the Assessor. The testimony and the appraisal were
proffered as evidence and a ruling on the motion was held in abeyance until the matter was
briefed by the parties. Having reviewed the briefs, the motion to exclude is denied for the
reasons identified in this Order.
2. Prior to concessions and stipulations made at the hearing of this matter, the Assessor
sought a value of $5,500,000. |