Court Disapproves Averaging of Comparable Sales
A New Jersey appellate court recently held that a trial judge’s practice of averaging comparable sales in fixing the fair market value of real property is an improper valuation practice. In Pansini Custom Design Assocs. v. City of Ocean City, Docket No. A-2003-07T1, the plaintiffs owned a single family residence at the Jersey shore, which was a historic 19th century structure formerly utilized as a United States Coast Guard lifesaving station until its retirement from that use many years ago. The property was designated as a historic structure, and local ordinances controlled and restricted the owners’ ability to change or demolish the building. Plaintiffs had attempted to sell the property so that it could be subdivided for future residential development, but the Ocean City historic preservation ordinance in question required the owner to first advertise the property for sale as a single-family home, preserving the existing structure.
The owners brought suit for declaratory judgment seeking to establish the fair market value consistent with the local ordinance so that the property could be sold. A bench trial ensued, where the trial judge criticized the appraisal methods used by both parties. Despite the judge’s criticism of the comparable sales used by the appraisers for both sides, the judge averaged the three highest comparables used by the City’s appraiser and the three lowers comps used by the owners’ appraisers in order to arrive at his conclusion of fair market value.
On appeal, the Appellate Division acknowledged the need for expert testimony on matters such as real estate valuation, but reasoned that the fact finder is not required to accept the testimony of any expert witness, in whole or in part. Accordingly, the trier of fact needs to weigh and evaluate experts’ opinions in order to reach a reasoned, just and factually supported conclusion. With this in mind, the appellate court held that the “averaging” technique ceded the fact-finder’s responsibility and was only a simple mathematical formula which was unacceptable. Noting the reluctance of prior courts to endorse averaging as an acceptable methodology for the trier of fact, the appeals court cautioned that allowing averaging of sales could result in appraisals “slanted to the extreme”, which “intentionally distort and skew the values to insure a high or low number without concern” for the fact finder’s responsibility to carefully determine fair market value. Accordingly, the trial court’s judgment was reversed, and the matter was remanded for a new trial as to valuation.
This case was not an eminent domain or real estate tax appeal trial, but the holding nonetheless would be relevant to any real estate valuation matter in New Jersey.
