Divorce lawyers use court certified real estate appraisal companies for the purpose of placing a value on any real estate involved in the case. In New Jersey, attorneys commonly use experts, especially for appraising assets for the purpose of equitable distribution of the marital home or any other real estate owned by the parties. Usually, the respective lawyers can agree on a joint real estate appraiser. However, in a truly contentious divorce, each attorney shall pick his or her own New Jersey court certified real estate appraiser. This can lead to what many attorneys call the “battle of the experts.”
Now, while a vast majority of New Jersey divorce cases settle, some head to a full-blown trial. At this point a divorce judge has the extremely important task of conducting a careful factual analysis of the data that may result in the adoption of one appraisal figure over another. While the following analysis does not involve a divorce matter, it is an excellent illustration as to how a judge of the Superior Court of New Jersey should approach the “battle of the experts.”
In the 2009 New Jersey Appellate Division case of Pansini Custom Design Assocs., LLC v. City of Ocean City, addressed the issue of whether a judge may fulfill his or her fact-finding duty by taking the average of comparable appraisals to fix the fair market value of real estate property, and whether this method is the proper method of evaluation. The New Jersey Appellate Division held that that the practice of averaging competing appraisals is not an appropriate method of property valuation, as it does not represent a reasonable and considerate valuation technique.
In Pansini the property in question was located at 801 Fourth Street. The owners, Pansini Custom Design Associates, LLC bought the property from Elizabeth Sheehan for $ 710,000. Under the historic-preservation provisions of Ocean City’s Zoning Ordinance, the property was considered as a historic structure because it had been a former United States Coast Guard Life Saving Station until it was retired in 1940. This 19th century building was one of the last four lifesaving stations, built bu the United States Life Saving Services, the United States Coast Guard’s predecessor, on the East Coast. Because of its historic structure designation, the Ocean City zoning ordinance requires any developer to comply with its provisions, specifically, the historic-preservation requirement, §§ 25-1800.1 to -.15.3, that mandates a property owner follow a series of steps before a historic building can be demolished. First, the owner must apply for a demolition permit with Ocean City’s Historic Preservation Commission. Then the if the Commission denies the application the applicant may file an appeal with the zoning board. If the denial is affirmed by the zoning board, then the applicant has a six-month waiting period in which he or she can sell sell the property for a fair market value to “any person or organization, governmental agency thereof or political subdivision or agency, which gives reasonable assurance that it is willing to preserve the building, place or structure.” However, if the property is not sold during the waiting period, then the applicant can develop the land “as a matter of right.”
The former owner, Sheehan followed the proper procedures, and Pansini bought the property and immediately advertised the property for sale with a real estate agent for $ 1.1 million for the three-lot subdivision that could be developed there. However, Ocean City disputed this price and contended that Pansini was required to advertise the property for the fair market value as historic district single family home. The court agreed with Ocean City, and as a result Pansini filed a motion in the Law Division to establish what exactly the fair market value was. A two-day trial was held, and three witnesses gave testimony: an real-estate appraiser retained by Pansini, a real-estate appraiser retained by Ocean City, and a real-estate appraiser retained by Saving Our Station Coalition, a group that objected to the property’s proposed development.
The judge actually criticized the appraisal methods of all three parties in his decision. He stated that the appraiser hired by Pansini inappropriately considered the potential development of the excess property beyond what the current use was. The judge also criticized the appraisers hired by the two defendants, because the comparable sales they chose to use occurred at a time when the real-estate market of Ocean City was, as he described it, “flat at best.”
Regardless of his criticisms, the judge to the average of the appraisal’s to establish a fair market value. He took the average of the three highest comparable sales submitted by the defendants’ appraisers, and the three lowest comparable sales submitted by Pansini’s appraiser. With this calculation he established that the fair market value to be $ 1,072,500. The Saving Our Station Coalition appealed the decision.
The New Jersey Appellate Division stated that the fact-finder’s, in this case the judge, needs expert testimony “where the fact-finder is not expected to have sufficient knowledge or experience and would have to speculate without the aid of expert testimony.” In determining the fair market value of real property, generally expert testimony is required, but the fact fact-finder is not required to accept the expert testimony of a witness. The judge is free to “accept some the of the expert’s testimony and reject the rest.” When a judge questions or rejects and expert’s testimony, he or she can appoint an independent expert. Still, in the end, the judge must evaluate the credibility of an expert’s opinion to fulfill his or her duty of reaching a just, reasoned, and factually supported conclusion. The New Jersey Appellate Division stated that the method of averaging different expert testimony or appraisals reduces the judge’s responsibility to a simple mathematical equation and therefore is an unacceptable method of fulfilling his or her responsibility as a fact-finder.
In the 1991 Tax Court case of Wedgewood Knolls Condominniumm Ass’n v. West Paterson Borough, Judge Crabtree rejected an appraisal technique that averaged sale prices. Judge Crabtree supported his decision with public policy considerations that the New Jersey Appellate Division thought were applicable in this case as well. He stated that unless there were several adjusted sales prices and each sale has equivalent significance, an arithmetic average is not appropriate, and can even be “extremely hazardous.” Similarly, in Watnog Assocs., Inc. v. Twp. Of Morris, Judge Andrew characterized the averaging method as “a dubious technique”, that is not a reliable way to reach the fair market value of a property. An appropriate method would be comparing the sales of similar properties, and utilizing reasonable judgment to analyze the relevant value factors, like time, physical characteristics, location, utility, and desirability.
The New Jersey Appellate Division held that averaging appraisals or comparable sales, is not a reasonable or proper method of valuation. The appellate panel explained that real-estate property is not a fungible asset. Therefore, the fact-finder, or judge, needs to consider and weigh the differences in appraisal values. In Pansini the three different appraisals were divergent in a number of factors, including location, the time of sale, amenities, and pretty much all the elements that factor into the appraisal analysis. If the court allowed averaging as a valuation model the result would be appraisals that intentionally skew or distort the property value to ensure a low or high number without the fact-finding fulfilling his or her duty to resolve the issue after a careful review of the data that should result in the judge adopting one appraisal amount over another. Therefore, the New Jersey Appellate Division held that the trial judge’s use of averaging as a valuation method was so flawed that his finding of fair market value could not be upheld.
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