Short Cuts Will Not Be Tolerated When it Comes to Real Property Value Determinations

In a newly decided New Jersey Appellate Division case, Pansini Custom Design Associates LLC v. City of Ocean City, the court, made clear that application of the simpleton approach of merely averaging comparables or the results of competing appraisal reports, will not do. In Pansini, the court found that such an approach to valuation represents a shirking of the fact-finder’s responsibility to reach a “reasoned, just and factually supported conclusion of value.” The court went on to hold that relying upon such a “simple mathematical formula is an unacceptable methodology for fulfilling one’s role as a fact-finder.”

Moreover the Tax Court of New Jersey has also recognized that permitting the use of averaging would only serve to encourage appraisal experts to slant their conclusions to the extremes. It has been recognized that permitting averaging to be utilized would mean appraisers would “intentionally distort and skew the values to insure a high or low number without concern that the fact finder must resolve the issue with a careful analysis of data that may result in adoption of one appraisal figure over another.”

In the end, the analysis which must be conducted should instead include a careful assessment of sales data, making appropriate and reasoned adjustments to reflect a host of factors, including: the time of sale, location, amenities, physical characteristics, utility and desirability of the properties held up for comparison. Importantly, the Pansini decision also served to reinforce the well-settled principle that comparable sale data is only of value to a reasoned valuation analysis where the gross magnitude of necessary adjustments to the “comparables” do not serve to belie comparability.

Anytime valuation of real property is at issue, whether in connection with parties’ contractual arrangements, or a tax court or condemnation proceeding, it is incumbent upon parties and professionals alike to ensure that the ultimate value conclusions reached by their appraisal experts are based upon empirical data and observations of existing and surrounding conditions and not simply a mathematical exercise.