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Pansini Custom Design Associates, LLC v. City of Ocean City

407 N.J. Super. 137, 969 A.2d 1163 (App. Div. 2009)

ZONING; VALUATION — In deciding whether a property owner, pursuant to the municipal ordinance requiring the owner to offer its property for sale at fair market value as a precondition to applying for demolition of an historic structure, a court may not use “averaging” as a valuation methodology and is required to carefully analyze the various expert’s opinions in picking one appraisal figure over another.

A property owner owned a single-family residence and a detached garage located within a municipality’s historic preservation district. The owner intended to demolish the building and build three duplex units. To demolish the building, it was required to apply to the municipality’s historic preservation commission. The municipality’s ordinance provided that if the historic preservation commission denies an application, the applicant may appeal to the zoning board. If the zoning board affirms the denial, the applicant can try to sell the property for fair market value to any person or organization willing to preserve the historic building. If the property is not sold within six months, the property may be developed as of right.

The owner’s application was denied. The zoning board of adjustment reversed and granted the application. Its decision was upheld by a lower court, but reversed by the Appellate Division. During the intervening time, the owner sold the property. The buyer then advertised the property for sale at the price it deemed appropriate for a three-lot subdivision that could be developed with three duplex units. The municipality disputed the price, claiming that the buyer was required to list the property for fair market value as a single family home. The lower court criticized the appraisal methods offered by the municipality, the buyer, and a concerned citizens group. However, the lower court averaged the three highest comparable sales used by the municipality with the three lowest comparable sales used by the buyer to determine the fair market value.

The citizens group appealed and the Appellate Division reversed. The Court found that the lower court’s averaging of comparable sales was not a reasoned and considered valuation technique and it did not fulfill the Court’s fact-finding responsibilities. The Court noted that expert testimony is required in order to determine the value of real property, and that fact-finders must evaluate the expert opinions before concluding the value. Here, it found that using a mathematical formula to average out the opinions was not an acceptable way for a court to fulfill its responsibilities as a fact finder. The Court reasoned that there are sound policy reasons not to use “averaging” as a valuation methodology because parties may intentionally distort and skew the values to ensure a high or low number if they would have no concern that the fact finder is required to carefully analyze the data in picking one appraisal figure over another.

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