Elmir Simov v. Board of Assessors of the City of Gardner (September 17, 2014)

COMMONWEALTH OF MASSACHUSETTS
APPELLATE TAX BOARD
	
ELMIR SIMOV  	v.     	BOARD OF ASSESSORS 	
            	OF THE CITY OF GARDNER

Docket No. F315160      	            	Promulgated:
							  	September 17, 2014


	This is an appeal filed under the formal procedure pursuant to G.L. c. 58A, § 7 and G.L. c. 59, §§ 64 and 65 from the refusal of the Board of Assessors of the City of Gardner ("assessors" or "appellee"), to abate a tax on certain real estate located in the City of Gardner owned by and assessed to Elmir Simov under G.L. c. 59, §§ 11 and 38 for fiscal year 2012 ("fiscal year at issue").  
	Commissioner Egan ("Presiding Commissioner") heard this appeal and in accordance with G.L. c. 58A, § 1A and 831 CMR 1.20, issued a single-member decision for the appellee.
 These findings of fact and report are made pursuant to a request by the appellant under G.L. c. 58A, § 13 and 831 CMR 1.32.

Elmir Simov, pro se, for the appellant.

Ellen M. Hutchinson, Esq. for the appellee.
  

FINDINGS OF FACT AND REPORT
On the basis of testimony and exhibits offered into evidence at the hearing of this appeal, the Presiding Commissioner made the following findings of fact. 
On January 1, 2011, the relevant assessment date for the fiscal year at issue, the appellant, Elmir Simov ("appellant"), resided at a parcel of land improved with a single-family residence, identified on the appellee's Map 27 as Block 24, Parcel 61 and with an address of 20 Franklin Court, Gardner ("subject property").  For the fiscal year at issue, the assessors valued the subject property at $181,500 and assessed a tax thereon, at the rate of $16.67 per thousand, in the total amount of $3,025.61.  On December 31, 2011, Gardner's Collector of Taxes sent out the town's actual real estate tax bills for the fiscal year at issue.  In accordance with G.L. c. 59, § 57C, the appellant timely paid the tax due without incurring interest.  On January 5, 2012, the appellant filed an abatement application with the assessors, which the assessors denied on April 5, 2012.  The appellant seasonably filed his Petition Under Formal Procedure with the Appellate Tax Board ("Board") on April 23, 2012.  On the basis of the preceding facts, the Presiding Commissioner found and ruled that the Board had jurisdiction to hear and decide the instant appeal.
The subject property is a 0.09-acre parcel of land improved with a three-story, multi-family building constructed in about 1900 and containing five apartments ("subject building").  It is located in Gardner, about one mile from Route 2, a major highway running east-west and connecting eastern, central and western Massachusetts, and it is situated on Franklin Court, a dead-end street that is within walking distance of downtown Gardner, in a neighborhood that contains many well-maintained multi-family buildings.
The subject building contains 4,004 square feet of living area divided among the five apartment units; four of the units are one-bedroom apartments and the fifth is a three-bedroom apartment.  The three-bedroom apartment is located on the second floor, and the four one-bedroom apartments are located on the first and third floors, two units per each of those floors.  Each floor has 1,347 total square feet.  The first and third floors have similar floor plans, with two one-bedroom/one-bathroom apartments.  The two units located at the front of the building -- one each on floors one and three -- have a small living room, a small bathroom, a kitchen with a pantry, and one bedroom.  The two units located at the back of the building -- one each on floors one and three -- have an open kitchen and living room, a small bathroom and one bedroom.  The second floor has one three-bedroom apartment that also includes a kitchen, one bathroom, a dining room and a living room.
The appellant purchased the subject property from TD Bank N.A. on October 1, 2009 for $114,400.  It appears that the appellant paid cash for the subject property, because no mortgage was recorded at the time of the recording of the deed.  However, the appellant later granted a mortgage on the subject property, on June 23, 2010, to Colonial Co-operative Bank to secure a loan for $152,200.  The loan was then refinanced on November 2, 2011 for the same amount.
The appellant contended that the assessed value of the subject property exceeded its fair cash value.  In support of his contention, the appellant presented an appraisal report prepared by licensed appraiser Richard E. McCowan on May 10, 2010.  The appraisal was prepared for the bank in connection with the mortgage on the subject property.  The appellant did not present Mr. McCowan as a witness at the hearing of this appeal.  To value the subject property, Mr. McCowan used a sales-comparison approach and an income-capitalization approach.  Details of these approaches as delineated in his report are summarized as follows.  
For his sales-comparison approach, Mr. McCowan selected five purportedly comparable properties located in Gardner and with sale dates ranging from August 5, 2009 to March 23, 2010.  These five purportedly comparable properties yielded adjusted sale prices in the range of $369,200 to $424,000.  Because the subject property and his comparables were rental properties, Mr. McCowan determined three indicators of value -- price per square foot, price per room, and price per unit.  He reconciled the average values he obtained using these methods for each of his comparables, and then he further reconciled the three values together to obtain an indicated value of $120,000 for the subject property.  
For his income-capitalization approach, Mr. McCowan selected three purportedly comparable rental properties located in Gardner, each within a mile from the subject property.  Based on his review of his purportedly comparable rental properties, Mr. McCowan selected $500 per square foot as the rental amount for the subject's four one-bedroom apartments and $850 for the subject's one three-bedroom apartment, for a total gross rental income of $2,850 (as compared with the subject's actual gross income of $2,905).  Mr. McCowan then applied expenses as follows: vacancy at 10% of gross income; maintenance and repairs at 5% of effective gross income ("EGI"); and management at 5% of EGI.  Mr. McCowan also applied other expenses based on those provided by the owner of the subject property at that time, including real estate taxes.  Mr. McCowan then applied a capitalization rate of 13%, which he derived from comparable sales.  He thus arrived at a value of $123,908, which he rounded to $125,000 for the value obtained under his income-capitalization approach.  
Mr. McCowan reconciled his values obtained through his sales-comparison and income-capitalization approaches by selecting $120,000 as the fair market value of the subject property as of the valuation date of May 10, 2010.  However, because Mr. McCowan was not present at the hearing of this appeal -- and therefore was not available for cross-examination by the appellee or for questioning by the Presiding Commissioner -- the appraisal report was hearsay.  Accordingly, the Presiding Commissioner did not credit Mr. McCowan's adjustments or opinions.
The appellant's other evidence in support of his appeal consisted of two spreadsheets, titled "2009 Qualified Sales, Gardner, MA" and "2010 Qualified Sales, Gardner, MA."  These data sheets consisted of the following information: sale date; parcel identification; address; sale price; description (single family, condominium, etc.); book and page of the sale deed; sale code; and buyer.  The sales included for 2009 ranged from $45,000 to $309,900 and the sales included for 2010 ranged from $43,000 to $875,000.  The data sheets provided no further analysis, including adjustments for comparison with the subject property.
Based on his evidence, the appellant's opinion of fair market value for the subject property for the fiscal year at issue was $124,000.
The appellee presented its case-in-chief through the testimony of assessor, Diane Lanney and the submission of documents, including the requisite jurisdictional documents as well as the appraisal report of Ms. Lanney.  Ms. Lanney inspected the subject property on September 27, 2011.  She inspected three of the five units, and she found the units to be in fair to average condition.  She assumed that the other two apartment units were in similar condition. 
Ms. Lanney explained that she considered the three approaches to value -- cost approach, sales approach and income-capitalization approach.  She disregarded the cost approach because the subject property was constructed in 1900, and she believed that too much speculation would have been required to determine its depreciation.  She also disregarded the sales approach, opining that multi-family buildings with four or more apartments are generally purchased by investors who are interested in the income stream to be generated by the property.
For her income-capitalization approach, Ms. Lanney reviewed the rent roll provided by the appellant for the subject property.  As of the relevant assessment date, the subject property's apartments were being rented as follows:  
First-floor front apartment:  	$670/month
First-floor rear apartment:		$342/month
Second-floor 3-bedroom apartment:	$645/month
Third-floor front apartment:		$320/month
Third-floor rear apartment:		$538/month

Ms. Lanney stated that the appellant had indicated his opinion that the one-bedroom apartments had a fair market rent of $500/month and the three-bedroom apartment had a fair market value of $750 per month.  Based on her knowledge and review of other available data, Ms. Lanney believed that the appellant's estimates were appropriate, and therefore, she adopted them for her income-capitalization analysis.
Next, Ms. Lanney selected a vacancy and collections rate.  Based on her knowledge of the Gardner multi-family market, Ms. Lanney opined that 10% of gross potential revenue was an appropriate vacancy/collections rate.
For expenses, Ms. Lanney reviewed the list of expenses that the appellant had provided to her.  Included in those expenses was an entry of $5,411 for utility and heating expenses.  Ms. Lanney considered this figure to be high, considering that the tenants paid for their own heat and electricity, with the exception of the three-bedroom apartment that had electricity included as part of the rental agreement.  Ms. Lanney thus considered the appellant's figure to be his expenditure prior to tenant reimbursement.  Therefore, Ms. Lanney calculated 10% of the expenditure, or $540, to be the appellant's payment of electricity for the three-bedroom unit, the equivalent of the landlord's expense for utility and heating costs for the vacant portion of the subject property.  Ms. Lanney next selected 5% of effective gross income as the management fee, and she also selected 5% of effective gross income for the reserves for replacement; she again based these on her knowledge of the Gardner multi-family market.  Ms. Lanney then adopted the appellant's reported expenses for advertising, legal and accounting, repairs and insurance.   
Next, Ms. Lanney calculated a capitalization rate.  Ms. Lanney used a ratio of mortgage-to-equity of 70%-to-30%.  She explained that she was conservative in choosing her fixed-rate mortgage figure of 6% and her bond rate of 8.5%.  Using her ratio, these rates yielded a capitalization rate of 6.75%.  To this, Ms. Lanney then added the fiscal year tax rate of $16.67 per thousand, which yielded an overall capitalization rate of 8.417%.
Ms. Lanney's analysis is summarized below:
Revenue
- 4 one-bedroom units @ $500/month		$24,000
- 1 three-bedroom unit @ $750/month	$ 9,000
Gross Potential Income ("GPI")		$33,000

Vacancy/credit loss @ 10% of GPI	    <$ 3,000>

Effective Gross Income ("EGI")		$30,000

Expenses
- management fee @ 5% of EGI			$ 1,500
- electricity for one unit			$   540
- advertising						$ 1,400
- repairs							$ 3,275
- legal/accounting					$ 1,500
- insurance						$ 3,984
- reserves @ 5% of EGI				$ 1,500
Total expenses						$13,699

Net income						$16,301

Capitalization rate                    / 8.417%

Opinion of fair market value			$193,700 (rounded)

Ms. Lanney pointed out that the appellee's opinion of fair market value was in excess of the assessed value of $181,500.  Therefore, Ms. Lanney determined that no abatement was warranted.
On the basis of the evidence, the Presiding Commissioner made the following findings with respect to the value of the subject property.  First, the sale of the subject property to the appellant was a bank sale and thus inherently suspect.  In the absence of evidence from the appellant that the sale was made without compulsion and that the subject property was sufficiently exposed to the market, the sale of the subject property to the appellant was not a reliable indicator of its fair market value.  Because the appellant did not advance any evidence rebutting this presumption, the Presiding Commissioner found that the sale of the subject property to the appellant was not persuasive evidence of its fair market value. 
Next, because Mr. McCowan's appraisal report was hearsay, the Presiding Commissioner rejected those portions of the report that contained Mr. McCowan's adjustments to his purportedly comparable properties and his opinions of value.  
With respect to the appellant's data sheets of purportedly comparable-sale properties in Gardner, the appellant offered no adjustments to any of the purportedly comparable properties to account for differences between those properties and the subject property.  Therefore, the Presiding Commissioner was unable to make a meaningful comparison between the subject property and the properties offered for comparison and, accordingly, the purportedly comparable properties were not reliable indicators of the subject property's fair cash value.  The Presiding Commissioner, therefore, found that the appellant's data sheets were not sufficient evidence for determining the fair market value of the subject property.  
The appellee, on the other hand, offered a well-reasoned and well-supported income-capitalization analysis, which the Presiding Commissioner found to be reasonable.  
On the basis of these findings, the Presiding Commissioner found and ruled that the appellant failed to meet his burden of proving a fair market value for the subject property that was less than the subject assessment.  Accordingly, the Presiding Commissioner decided this appeal in favor of the appellee.
OPINION
The assessors are required to assess real estate at its fair cash value as of the first day of January preceding the fiscal year at issue.  G.L. c. 59, §§ 11 and 38.  The fair cash value of a property is defined as the price upon which a willing buyer and a willing seller would agree if both were fully informed and under no compulsion.  Boston Gas. Co. v. Assessors of Boston, 334 Mass. 549, 566 (1956).	 
The appellant has the burden of proving that the property has a lower value than that assessed.  "The burden of proof is upon the taxpayer to make out a right to an abatement."  Schlaiker v. Assessors of Great Barrington, 365 Mass. 243, 245 (1974)(quoting Judson Freight Forwarding Co. v. Commonwealth, 242 Mass. 47, 55 (1922)).  "[T]he Board is entitled to 'presume that the valuation made by the assessors [is] valid unless the taxpayers ... prov[e] to the contrary.'"  General Electric Co. v. Assessors of Lynn, 393 Mass. 591, 598 (1984)(quoting Schlaiker, 365 Mass. at 245)).
Actual sales of the subject property generally provide "very strong evidence of fair market value, for they represent what a buyer has been willing to pay to a seller for [the] particular property [under appeal]."  New Boston Garden Corporation v. Assessors of Boston, 383 Mass. 456, 469 (1981), (quoting First National Stores, Inc. v. Assessors of Somerville, 358 Mass. 554, 560 (1971)).  However, "the evidentiary value of such sales in less than arm's-length transactions is diminished."  New Boston Garden Corp., 383 Mass. at 469 (quoting Jordan Marsh Co. v. Assessors of Malden, 359 Mass. 106, 108 (1971)).  Like foreclosure sales, sales by a bank, which acquired the property by foreclosure or a deed in lieu of foreclosure, are "inherently suspect," because by their nature, there is a suggestion that they do not represent an agreement between a willing buyer and a willing seller in a free and open market without compulsion.  Haynes v. Assessors of Middleton, Mass. ATB Findings of Fact and Reports 2011-143, 185 (citing DSM Realty, Inc. v. Assessors of Andover, 391 Mass. 1014 (1984) and G.F. Springfield Management v. Assessors of West Springfield, Mass. ATB Findings of Facts and Reports 2000-228, 242, 251).  
In this appeal, the Presiding Commissioner found and ruled that the sale of the subject via a bank sale to the appellant was inherently suspect.  The appellant offered no evidence to rebut the presumption of compulsion and show that the sale price was arrived at in an arm's-length transaction and with sufficient exposure to the market.  Therefore, the Presiding Commissioner ruled that the sale of the subject to the appellant was not a reliable indicator of the fair market value of the subject property.  
The appellant next offered an appraisal report prepared at the request of the bank in connection with a mortgage secured by the subject property.  However, his appraisal report was unsubstantiated hearsay, and therefore, the Presiding Commissioner ruled that it was not reliable evidence of the fair market value of the subject property.  See, e.g., Ward Brothers Realty Trust v. Assessors of Hingham, Mass. ATB Findings of Fact and Reports 2012-515, 525 (rejecting adjustments and opinion of value contained in an appraisal report as hearsay where author of the report did not testify at hearing and therefore was not available for cross-examination by the opposing party or questioning by the Board member presiding). 
The appellant next offered data of purportedly comparable sales in Gardner.  Sales of comparable realty in the same geographic area and within a reasonable time of the assessment date generally contain probative evidence for determining the value of the property at issue.  Graham v. Assessors of West Tisbury, Mass. ATB Findings of Fact and Reports 2007-321, 400 (citing McCabe v. Chelsea, 265 Mass. 494, 496 (1929)), aff'd, 73 Mass. App. Ct. 1107 (2008).  Properties are "comparable" to the subject property when they share "fundamental similarities" with the subject property.  See Lattuca v. Robsham, 442 Mass. 205, 216 (2004).  The appellant bears the burden of "establishing the comparability of . . . properties [used for comparison] to the subject property.  Silvestri v. Assessors of Lowell, Mass. ATB Findings of Fact and Reports 2012-926, 935.  Accord New Boston Garden Corp. v. Assessors of Boston, 383 Mass. 456, 470 (1981).  "[B]asic comparability is established upon considering the general character of the properties." Id.  
The appellant's data sheets lacked any adjustments for size, time of sale, location and condition that would make a meaningful comparison with those properties and the subject property.  The appellant thus failed to establish basic comparability between the cited properties and the subject property.  See Lupacchino v. Assessors of Southborough, Mass. ATB Findings of Fact and Reports 2008-1253, 1269 ("[W]ithout appropriate adjustments . . . the assessed values of [comparable] properties [do] not provide reliable indicator[s] of the subject's fair cash value."); see also Antonino v. Assessors of Shutesbury, Mass. ATB Findings of Fact and Reports 2008-54, 71 ("[R]eliance on unadjusted assessments of assertedly comparable properties . . . was insufficient to justify a value lower than that assessed."). The Presiding Commissioner therefore was not persuaded by the appellant's comparable-sales evidence.  



Conclusion
Based on the evidence presented, the Presiding Commissioner found and ruled that the appellant failed to meet his burden of proving that the subject property was overvalued for the fiscal year at issue.  On this basis, the Presiding Commissioner decided this appeal for the appellee.


             			 THE APPELLATE TAX BOARD

				  By: _________________________________
					 Thomas W. Hammond, Jr., Chairman




A true copy,

Attest: _____________________________
           Clerk of the Board

ATB 2014-614