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Alpine Country Club v. Borough of Demarest

354 N.J. Super. 387, 807 A.2d 257 (App. Div. 2002)

TAXATION; ASSESSMENTS— A court cannot use the “rule of thumb” valuation technique where testimony about valuation is general in nature and is offered for other purposes.

A country club filed a series of property tax appeals. All parties agreed that “the appropriate method for determining the valuation of a country club [is] with the highest and best use as a residential subdivision,” our approach is consistent with New Jersey case law. The lower court, “correctly articulated the nature of [a] subdivision development [value] analysis” as “application of discounted cash flow analysis in which revenues and expenses together with an allowance for profit are projected over a development period and then discounted back to a valuation date to arrive at a value estimate for undeveloped land.” Nonetheless, the lower court “chose not to use this analysis because ... the differences between the appraisers as to the component elements in the [discounted cash flow] calculation were ‘more numerous and of a greater magnitude’ and ‘in many instances the factors that they employ rest upon subjective opinion rather than verifiable data.’” Instead, the lower court relied on the testimony of an investor and developer in a similar subdivision development near the country club. The investor/developer “was produced by [the] municipalities as a fact witness, primarily to testify as to the specific facts relating to [a particular comparable sale used by one of the appraisers] in support of [the] municipalities’ claim it should not be considered as a comparable sale.” In the course of the developer’s testimony, he set forth the various “rule-of-thumb” formulas that he had used in determining the purchase price of his undeveloped land in the vicinity of the country club. The lower court was aware of case law in which “the Tax Court regarded the ‘rule of thumb’ approach as a modified application of the subdivision development model, employing a ‘less complicated and more generalized calculation.’” The lower court, however, concluded that the “rule of thumb should be used not simply as a cross check or corroboration of the more detailed model but rather that it should be recognized as a useful modification of the approach and employed directly to derive value.” On appeal, the Appellate Division analyzed the testimony of the investor/developer and found that it “was general in nature” and did not pertain “directly to the proposed subdivision of” the country club. Additionally, the investor/developer was not aware of the extent of wooded areas or other aspects of sensitive nature of the subject site, “which would impact the potential for opposition” to development, as had been the case in the particular sale that he was involved with. The Court found that the investor/developer’s testimony “was offered to discredit the use of [a particular neighboring] property as a sales comparable. [Therefore it] was error for the Tax Court to adopt [the investor/developer’s] ‘rule of thumb’ methodology to value the subject property.”

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