M.P. Mariano and B.A. Mariano v. Wyoming County Board of Assessment Appeals & Revision of Taxes

IN THE COMMONWEALTH COURT OF PENNSYLVANIA
Martin P. Mariano and Beverly A. :
Mariano, :
Appellants :
:
v. :
:
Wyoming County Board of Assessment :
Appeals & Revision of Taxes, Wyoming :
County, Tunkhannock Area School : No. 2489 C.D. 2015
District and Tunkhannock Borough : Argued: June 9, 2016
BEFORE: HONORABLE P. KEVIN BROBSON, Judge
HONORABLE ANNE E. COVEY, Judge
HONORABLE DAN PELLEGRINI, Senior Judge
OPINION NOT REPORTED
MEMORANDUM OPINION BY
JUDGE COVEY FILED: July 5, 2016
Martin P. Mariano and Beverly A. Mariano (collectively, Taxpayers)
appeal from the Common Pleas Court of the 44th Judicial District (Wyoming
County Branch’s) (trial court) October 9, 2015 order and October 29, 2015
amended order in favor of the Wyoming County Board of Assessment Appeals &
Revision of Taxes (Board), the Tunkhannock Area School District, Wyoming
County and Tunkhannock Borough (collectively, Taxing Authority), setting the
fair market value of the Taxpayers’ property at $5,650,000.00 as of September 1,
2012, $5,850,000.00 for tax year 2014, and $6,220,000.00 for tax year 2015. The
Taxpayers present three issues for this Court’s review: (1) whether the trial court
erred by crediting the Taxing Authority’s appraiser Blair Bates’ (Bates) valuation
opinion which was based on out-of-market comparables and contained
miscalculations; (2) whether the trial court erred by crediting Bates’ valuation
opinion based upon a cost multiplier for the cost approach that was not facility-
specific; and, (3) whether the trial court erred by crediting Bates’ opinion whose
sales comparison approach failed to make appropriate adjustments to reflect the
differences among out-of-market comparables. After review, we affirm.
Taxpayers own a 27.94-acre parcel of real property located in
Tunkhannock Township, Wyoming County,1 situated within the Tunkhannock
Area School District (Property). The Property contains a single-story building
specifically designed as a medical clinic consisting of 25,800 square feet of
leasable space and a parking lot for approximately 161 cars. The building is
occupied by Geisinger Clinic (Geisinger) under a 15-year lease effective
November 1, 2006. According to Taxpayers, the building was a “design-build
project,” in that Taxpayers purchased the Property for the purpose of constructing a
building to Geisinger’s particular specifications, and the costs associated with the
Property’s acquisition and the building’s construction were incorporated into
Geisinger’s lease rate.2 See Reproduced Record (R.R.) at 59a.
The Board’s 2013 tax year assessment of the Property was
$1,140,270.00, which consisted of $72,950.00 for the land and $1,067,320.00 for
the improvements. Taxpayers appealed, seeking a reduction in the assessment.
The Board denied Taxpayers’ appeal. Taxpayers appealed to the trial court and the
trial court held a non-jury trial on May 27 and September 30, 2015.
During the trial, Taxpayers offered the testimony of appraiser
Frederick Lesavoy (Lesavoy). Lesavoy used both the sales comparison and
income approaches to valuation. Although Lesavoy considered the cost approach,
he did not believe it was applicable in this instance “due to the difficulty in reliably
estimating depreciation . . . , the fact that market conditions don’t warrant new
1
Wyoming County is a Seventh Class County.
2
Taxpayers also represent that the construction of a medical clinic is far more costly to
build than a traditional professional office building. See Reproduced Record at 61a.
2
construction at this time, and the fact that an income-producing property’s cost is
not necessarily consistent with its value.” R.R. at 553a.
Lesavoy considered comparable sales, but admitted that none of the
comparables were as new as or newer than the Property. Lesavoy explained that
there were no such buildings in the area, and that
the most important factor is that you use sales that are
within a relative[ly] similar kind of marketplace. I mean,
I could go to Philadelphia and use sales from
Philadelphia that are new that are built in 2006, but the
marketplace there is a multimillion population. Lehigh
Valley, hundreds of thousands of people. Bethlehem,
Reading, these other areas, there are sales that occurred
that are of newer buildings, but more important than it
being new is where it is. . . . We must stay within
somewhat of rural areas and that’s why I selected these
sales.
R.R. at 217a-218a.
Lesavoy also considered the income approach to valuation. In
developing the income approach, Lesavoy declined to use the contract rental rate to
determine market value since, in Lesavoy’s opinion, the design-build nature of the
project rendered the contract rental rate an inaccurate value measure.3 Instead,
Lesavoy developed a hypothetical rental rate for the Property, using leases for
similar buildings located in comparable neighborhoods.
The Taxing Authority offered the testimony of Bates, who used all
three approaches to develop the Property’s market value. In developing the sales
comparison approach, Bates explained:
One of the things that I looked at in finding sales that I
wanted to consider to compare with the subject property
3
Because Geisinger’s lease was based on costs associated with acquiring the Property
and constructing the facility, Lesavoy believed the contract rental rate was above-market and
would result in an inaccurate valuation.
3
was comparability. Not so much comparability of
location, as [Lesavoy] focused on, but comparability of
function. We have a medical clinic building . . . the one
and only medical clinic in Wyoming County. You have
to find similar clinic buildings, if you can find them, and
adjust for location[.]
R.R. at 286a-287a. He further stated:
The specific criteria that I used for choosing sales, . . .
[was] medical office or clinic use. . . . Building size of
10,000 square feet or larger, leased ideally to a credit
worthy tenant, a large hospital, or government agency.
That wasn’t always possible. This is what I was looking
for, and recently constructed or renovated, between zero
and fifteen years old. So, I wanted newer buildings,
contemporary design, with good, solid tenancy.
R.R. at 288a.
Bates also considered the cost approach. He explained:
[I]f you’re starting on the cost approach, the first thing
you do is estimate the value of the underlying land as if
vacant, looking at, when they’re available, land sales.
Then you estimate the replacement cost new for the
subject improvements. From that, you subtract
depreciation leading to a depreciated replacement cost
new. Add that land value previously estimated and you
have an estimate of market value by the cost approach.
R.R. at 280a-281a. He also related that:
Source for my costs in all cases was the Marshall
valuation service. I show that at the bottom of each cost
summary page. [The] Marshall [V]aluation [S]ervice
[(Marshall & Swift)] section page, date, and everything
was adjusted to a current value. The – if you look at the
– toward the top of the page, there are – there’s a – the
left[-]hand column entitled multipliers and there’s a
current cost and local area of multipliers. The current
cost is the technique we use to bring value forward or
backward from the date of publication of the Marshall
service.
R.R. at 284a.
4
Finally, regarding the income approach to valuation, Bates explained:
[T]he income approach I developed was based on a
leased fee, that is, the rental contract between [Geisinger]
and Mr. Mariano so we have . . . a property which is
subject to this contract. It prescribes what can be done
and what must be paid in order to do it in that building.
R.R. at 294a-295a. Bates did not consider a hypothetical market rent since “[t]he
hypothetical market rent was not necessary because we had a real contract rent.
We know what it’s going to be for the next couple of . . . years[.]” R.R. at 298a.
On October 9, 2015, the trial court issued an order setting the fair
market value of the Property for the 2014 tax year at $5,850,000.00, and the fair
market value of the Property for the 2015 tax year at $6,220,000.00. On October
29, 2015, the trial court issued an amended order setting the fair market value of
the Property as of September 1, 2012 at $5,650,000.00. Taxpayers appealed to this
Court.4
Initially,
[S]ection 402(a) of The General County Assessment Law
(Assessment Law), Act of May 22, 1933, P.L. 853, as
amended, 72 P.S. § 5020–402(a), identifies three
methods of property valuation that must be considered
in conjunction with one another when arriving at fair
market value for assessment purposes: cost approach,
income approach, and comparable sales approach.
The cost approach considers reproduction or replacement
costs of the property, less depreciation and obsolescence.
The income approach determines fair market value by
dividing the subject property’s annual net rental income
by an investment rate of return. The comparable sales
4
“Our review of tax assessment appeals is limited to determining whether errors of law
were committed, an abuse of discretion occurred, or constitutional rights were violated.” Aetna
Life Ins. Co. v. Montgomery Cnty. Bd. of Assessment Appeals, 111 A.3d 267, 278 n.2 (Pa.
Cmwlth. 2015).
5
approach compares the subject property to similar
properties with consideration given to size, age, physical
condition, location, and other factors.
Aetna Life Ins. Co. v. Montgomery Cnty. Bd. of Assessment Appeals, 111 A.3d 267,
278 (Pa. Cmwlth. 2015) (citations omitted; emphasis added).
The Pennsylvania Supreme Court has explained:
In an assessment appeal, the matter before the trial court
is heard de novo, and the order of proof is well settled.
The procedure requires that the taxing
authority first present its assessment record
into evidence. Such presentation makes out
a prima facie case for the validity of the
assessment in the sense that it fixes the time
when the burden of coming forward with
evidence shifts to the taxpayer. If the
taxpayer fails to respond with credible,
relevant evidence, then the taxing body
prevails. But once the taxpayer produces
sufficient proof to overcome its initially
allotted status, the prima facie significance
of the [b]oard’s assessment figure has served
its procedural purpose, and its value as an
evidentiary devise is ended. Thereafter,
such record, of itself, loses the weight
previously accorded to it and may not then
influence the court’s determination of the
assessment’s correctness.
[T]he taxpayer still carries the burden of
persuading the court of the merits of his
appeal, but that burden is not increased by
the presence of the assessment record in
evidence.
Of course, the taxing authority always has
the right to rebut the owner’s evidence and
in such a case the weight to be given to all
the evidence is always for the court to
determine. The taxing authority cannot,
however, rely solely on its assessment
6
record in the face of countervailing evidence
unless it is willing to run the risk of having
the owner’s proof believed by the court.
[Deitch Co. v. Bd. of Prop. Assessment,] 209 A.2d [397,]
402, [(Pa. 1965)] (citations and footnote omitted).
The trial court’s statutory mandate, as established in the .
. . Assessment Law, is to hear the evidence and to ‘make
such orders and decrees . . . as . . . may seem just and
equitable. . . .’ 72 P.S. § 5020-518.1(a). The Fourth to
Eighth Class County Assessment Law[5] includes a more
specific direction to the trial court to determine, inter
alia, the market value of the subject property. See 72
P.S. § 5453.704(b). In essence, ‘[t]he Legislature has
confided to the Court of Common Pleas the duties of fact
finder where there has been an appeal from an
assessment for taxes.’ Appeal of Edmonds, . . . 172 A.
103, 104 ([Pa.] 1934); accord Appeal of Park Drive
Manor, . . . 110 A.2d 392, 394 ([Pa.] 1955); In re Lehigh
& Wilkes-Barre Coal Co., . . . 151 A. 359, 359 ([Pa.]
1930).
This does not mean that the trial court becomes an
assessor, or an appraiser[.] Rather, in assessment cases,
as in others, the trial court must make its determination
on the basis of the evidence put before it. The credibility
and weight of such evidence is for the trial court to
determine. Thus, as this Court has recently observed,
‘[t]he duty of the trial court in hearing a tax assessment
appeal de novo is to independently determine the fair
market value of the parcel on the basis of the competent,
credible and relevant evidence presented by the parties.’
Westinghouse [Elec. Corp. v. Bd. of Prop. Assessment of
Allegheny Cnty.,] 652 A.2d [1306,] 1311 [(Pa. 1995)]
5
Section[] . . . 704 of the Fourth to Eighth Class County Assessment
Law, Act of May 21, 1943, P.L. 571, as amended, formerly 72 P.S.
§ . . . 5453.704, [was] repealed by Section 6(1)(ii) of the Act of
October 27, 2010, P.L. 895, which [was] virtually identical to
Section[]. . . 8854(a)(2) and (3) of the Consolidated County
Assessment Law.
In re Appeal of Springfield Sch. Dist. from the Decision of the Bd. of Assessment Appeals of
Delaware Cnty., 101 A.3d 835, 844 (Pa. Cmwlth. 2014).
7
(quoting In re Appeal of Jostens, Inc., . . . 508 A.2d 1319,
1323 ([Pa. Cmwlth.] 1986) (citations omitted)).
Green v. Schuylkill Cnty. Bd. of Assessment Appeals, 772 A.2d 419, 425-26 (Pa.
2001) (citations omitted).
‘The trial court has the discretion to decide which of the
methods of valuation is the most appropriate and
applicable to the given property.’ Willow Valley Manor
v. Lancaster C[nty.] B[d.] of Assessment Appeals, 810
A.2d 720, 723 (Pa. Cmwlth. 2002). ‘In tax assessment
appeals, actual value or fair market value is determined
by competent witnesses testifying as to the property’s
worth in the market; i.e., the price a willing buyer would
pay a willing seller, considering the uses to which the
property is adapted and might reasonably be adapted.’
Id.
In performing de novo review in tax assessment appeals,
the trial court is the ultimate finder of fact. In re Penn–
Delco Sch. Dist., 903 A.2d 600 (Pa. Cmwlth. 2006). ‘As
fact-finder, the trial court maintains exclusive province
over matters involving the credibility of witnesses and
the weight afforded to the evidence.’ Id. at 608. ‘As a
result, this Court is prohibited from making contrary
credibility determinations or reweighing the evidence in
order to reach an opposite result.’ Id.
Parkview Court Assocs. v. Delaware Cnty. Bd. of Assessment Appeals, 959 A.2d
515, 520-21 (Pa. Cmwlth. 2008).
Nevertheless, as fact-finder, ‘the trial court must state the
basis and reasons for its decision.’ Green . . . , 772 A.2d
[at] 433 . . . . If the trial court rejects an expert’s
testimony for specified reasons, an appellate court may
review the validity of those reasons. Further, if an expert
uses an improper factor when fixing the fair market value
of real estate, his opinion is not substantial evidence that
can support a finding of value.
Aetna, 111 A.3d at 279 (citation omitted).
8
In the instant matter, the trial court discussed the expert testimony,
explaining:
During the non-jury trial, the [Taxpayers] called
[Lesavoy] who completed an appraisal for the [Property]
on January 1, 2015. [Lesavoy] testified that based upon
the sales comparison approach and an income approach
to value, the implied market value for the [P]roperty is
$6,191,666.00 for 2015. [Lesavoy] further testified that
for purposes of reaching a valuation conclusion as to the
comparable sales approach the market value of the
[Property] is $120.00 a square foot or $3,100,000.00.
Through the income approach, [Lesavoy] found a market
value of $3,180,000.00.
[Lesavoy] again opined with a reasonable degree of
professional certainty for the [P]roperty for the tax year
2015 was $3,150,000.00 and that this value had declined
from the values of 2014 and 2013. He testified that the
implied value of the [Property] in 2012 was
$5,701,350.00 and in 2014 it was $5,621,531.00.
[Lesavoy] continued by opining that the final value as of
September 2012 (tax year 2013) was $3,300,000.00 and
in January 2014 was $3,370,000.00. Although [Lesavoy]
testified that he considered the cost approach, he
determined that it is not applicable.
On cross-examination, [Lesavoy] testified that he defined
market value utilizing the federal financing definition as
opposed to the definition adopted by the Pennsylvania
Supreme Court. He further testified that he utilized
bank[] sales in his sales comparison approach. The
properties that [Lesavoy] used to compare consisted of a
diagnostic facility, a modern facility that was part
medical and part office, a smaller space and buildings
that required upgrades, whereas the [Property] is a
modern facility in a rural area.
The Board called [Bates] who testified that he has
appraised numerous medical office properties, including
the [Property] at issue in 2008. [Bates] employed all
three methods of valuation including the cost, sales
comparison and income approach to value. Utilizing a
9
cost approach, [Bates] opined that the value of the
[Property] in 2012 as $5,550,000.00, $5,825,000.00 in
2014 and $5,850,000[.00] in 2015. [Bates] testified that
as a result of increasing construction costs and increasing
depreciation, there was a small increase in value between
2014 and 2015. Utilizing the sales comparison approach,
[Bates] opined that the value of the [P]roperty as of
January 1, 2015 was $6,450,000.00. [Bates] next used
the income approach and opined that in 2012 the value of
the [Property] was $5,820,000.00 and in 2014 it was
$5,890,000.00.
In formulating his opinion, [Bates] considered the
[Pennsylvania] Supreme Court mandated definition or
market value, the uses to which the [P]roperty could be
applied, the lease on the [P]roperty, market factors, the
changing pattern of delivery of medical services, the
market changes throughout the periods under analysis,
[P]roperty factors, the [P]roperty location, the subject
land and building, the quality, quantity and configuration
of the [P]roperty, the terms and conditions of the lease,
current replacement costs, improved property sales,
market rents and surveyed capitalization rates.
[Bates] opined that the market value of the [Property] as
of September 1, 2012 was $5,650,000.00, as of January
1, 2014 was $5,850,000.00 and as of January 1, 2014 was
$6,220,000.00. Based upon the testimony of the experts,
consideration of the methods and approaches utilized by
each in opining regarding values of the [Property] and
review of the entire record, this [trial c]ourt determined
that [Bates] was more credible and as such, this [trial
c]ourt utilized the values as set forth by [Bates].
R.R. at 1082a-1084a (citations omitted).
Taxpayers first argue that the trial court erred by crediting Bates’
valuation opinion, which relied on out-of-market comparables and contained
miscalculations. Specifically, Taxpayers contend that, in determining the
Property’s market value under the income approach, Bates should have used a
hypothetical market rental rate of comparable rentals, rather than the Geisinger
10
lease rate which was based on a design-build project and, thus, was inflated by site
acquisition and building construction costs. Further, Taxpayers assert that Bates
improperly justified his use of the Geisinger lease rate by referencing rental rates
of comparable buildings in “superior markets.” Taxpayers’ Br. at 45.6
This Court recently rejected a similar argument. In Downingtown
Area School District v. Chester County Board of Assessment Appeals, 131 A.3d
152 (Pa. Cmwlth. 2015), property owner, LTK Associates, L.P. (LTK) and
Walgreen Eastern Company, Inc. (Walgreens) appealed from a trial court order
establishing the assessed value of property leased to a Walgreens’ pharmacy. LTK
constructed the building on the property to Walgreens’ specifications. Walgreens
entered into a 25-year lease with multiple extension options. The lease price to
Walgreens was 58.5% above market value, and Walgreens was responsible for
paying the property’s real estate taxes. This Court noted that the trial court had
acknowledged:
[A] long-term lease must be considered in establishing a
property’s market value because it is a factor that affects
the price a purchaser is willing to pay for a property. . . .
[W]hen a property generates income, the income
approach is an appropriate method to use in ascertaining
its value. When applying that method, the contract rent
received under the lease is the relevant income stream
that is to be capitalized, even if it is below prevailing
market rental sales.
6
Taxpayers’ assertion that Bates’ valuation ignored the fact that the subject Property was
a design-build project and, thus, the trial court erred when it relied on Bates’ testimony is without
merit. An expert’s failure to properly consider a factor affecting the value of a property “goes
only to the weight of the expert’s testimony, not its competency.” In re Appeal of Prop. of
Cynwyd Invs., 679 A.2d 304, 310 (Pa. Cmwlth. 1996). Thus, even if we were to conclude that
Bates erred by using the Geisinger lease rate in his income approach analysis (which we do not),
such error would not affect the competency of his testimony, only the weight. Because the trial
court acted well within its authority in finding Bates credible and affording his testimony weight,
this Court may not reweigh that evidence. See Parkview.
11
The trial court also cited Tech One Associates v. Board of
Property Assessment, Appeals and Review of Allegheny
County, . . . 53 A.3d 685, 703 ([Pa.] 2012), wherein the
Pennsylvania Supreme Court stated that the market value
of the property as a whole, including the leased fee and
leasehold interest, must be considered.
Downingtown, 131 A.3d at 155 (citations omitted). LTK and Walgreens argued
that
the leasehold interest must be determined by comparing
the tenant’s position under the lease to market rent.
[LTK and Walgreens] contend that because Walgreens’
contract rent is above-market, the leasehold is negative.
Specifically, according to The Appraisal of Real Estate
441 (14th ed. 2013), ‘[t]he value of a leasehold estate
may be positive, zero, or negative, depending on the
relationship between market rent and contract rent. . . .
The difference between the market rent and contract rent
may be capitalized at an appropriate rate or discounted to
present value to produce an indication of the leasehold
value, if any. . . .’ Here, Walgreens pays $31.71 [per
square foot], which is above the market rent of $20[.00
per square foot]. Walgreens is in an inferior position for
what it pays to occupy the retail space. Walgreens
maintains that the economic reality of the lease is that
over the remaining 22 years, it will pay $3,362,485[.00]
more than other tenants in the market for similar space.
Downingtown, 131 A.3d at 156-57. This Court rejected LTK’s and Walgreens’
argument and affirmed the trial court, stating:
We conclude that the trial court correctly disregarded
[the t]axpayers’ negative leasehold interest calculation.
In Tech One, Tech One owned the land and received
contract rent from Terra Century Associates, which
owned the buildings and improvements. Id. at 686–87.
Terra Century also received rent from entities that leased
the buildings. To determine the fair market value of the
property, the Pennsylvania Supreme Court held that it
was necessary to value both the leased fee held by Tech
One and the leasehold held by Terra Century.
12
Here, LTK owns all of the [p]roperty, including the land,
the buildings, and the surrounding improvements.
Nonetheless, Tech One requires valuation of both the
leased fee and the leasehold. As to the leased fee,
Walgreens does not sublease the space and, therefore,
receives no rent as in Tech One. Moreover, the economic
reality of Walgreens’ lease is that a willing buyer would
pay $0 for the lease because no one would be interested
in paying above-market rent. Although Walgreens is
paying above-market rent, there is no negative effect on
the value of the [p]roperty. Accordingly, the trial court
did not err.
Downingtown, 131 A.3d at 157 (citations omitted).7
7
Importantly, Taxpayers acknowledge Downingtown, but fail to effectively distinguish it,
stating:
[Taxpayers are] aware of the Commonwealth Court’s opinion in
[Downingtown] where the Court held that the taxpayer’s negative
leasehold interest calculation should be disregarded. And instead,
according to the economic realities, the value of the leasehold
interest must be considered even if that leasehold interest is paying
rent at, ‘above[-]market rate rent.’ The single distinguishing [sic]
between [Downingtown] and this case is that in Downingtown
the contract rent was simply that, contract rent. Whereas in
this case, contract rent constitutes reimbursement for the cost of
construction, thereby justifying [Taxpayers’ expert’s] position that
contract rent should be ignored and a market rate of rent developed
in order to determine the true market value of the Property.
Taxpayers’ Br. at 26 n.16 (emphasis added). Contrary to Taxpayers’ assertion, there is nothing
in this Court’s Downingtown opinion indicating that the rent payments differed in any significant
way from those in the instant matter, or that “the [above-market] contract rent was simply that,
contract rent.” Taxpayers’ Br. at 26 n.16. Instead, as in the case at bar, the property owner
“developed the [p]roperty according to [the tenant’s] specifications[, and s]ince its construction .
. . , the building has been occupied by [the tenant] pursuant to a long-term lease . . . .”
Downingtown, 131 A.3d at 154. Further, as in the instant action, the tenant in Downingtown was
paying above-market rental rates. Thus, we do not agree that Taxpayers’ “single distinguishing”
factor is indeed distinguishable. Taxpayers’ Br. at 26, n.16.
13
Thus, we herein conclude that Bates properly used Geisinger’s lease
rate in determining the Property’s fair market value using the income approach.8
Accordingly, the trial court did not err when it relied thereon.9
Taxpayers next argue that the trial court erred by crediting Bates’
valuation opinion based upon a cost multiplier for the cost approach that was not
specific to the type of facility located on the Property. Bates testified that he relied
on Marshall & Swift to determine the replacement costs of a medical clinic similar
to the Property. See R.R. at 284a. Bates used the cost criteria for a medical
building. Although Marshall & Swift provides cost multipliers for various types of
buildings, Bates admitted that it does not have a cost multiplier for a medical clinic
as distinguished from a medical building.10 Accordingly, Taxpayers contend that
“almost no reliance can be placed upon [Bates’] reliance on the cost approach
because his primary source for estimating costs does not have a specific cost
8
Taxpayers also contend that Bates’ “income approach to value . . . contained at least
two (2) mathematical errors, thereby undermining the credibility of this methodology of
valuation.” Taxpayers’ Br. at 48 (emphasis added). Bates explained that his opinion of market
value using the income approach was based on a range of comparable values, rather than an
average of those values. Thus, an error in his calculations of one of the lease rates did not render
his opinion invalid. Although Taxpayers may be correct in their assertion, credibility
determinations are within the exclusive province of the trial court. See Parkview.
9
We further reject Taxpayers’ argument that Bates’ opinion on market-rate rent was
improperly supported by rental rates in superior markets. We address that assertion in our
discussion of Taxpayers’ third argument pertaining to Bates’ use of comparables from dissimilar
marketplaces for his valuation using the sales comparison approach.
10
On cross-examination, the following exchange occurred:
Q. [Taxpayers’ Counsel:] And that all started off with a number
from Marshall [&] Swift, which doesn’t start with the same kind of
building that is the subject, correct? You don’t know that. There’s
not that classification within Marshall [&] Swift.
A. [Bates:] Correct.
R.R. at 422a.
14
multiplier for the very type of building that is the subject of this appeal.”
Taxpayers’ Br. at 49. Quoting Grand Prix Harrisburg, LLC v. Dauphin County
Board of Assessment Appeals, 51 A.3d 275, 280 (Pa. Cmwlth. 2012), Taxpayers
argue that “if an appraiser uses an improper factor when fixing the fair market
value of real estate, his opinion is not substantial evidence that can support a
finding of value.” Taxpayers’ Br. at 49-50.
Notably, Bates did not agree that a distinction between a medical
building and medical clinic rendered his opinion invalid or inaccurate. Further,
Lesavoy did not believe the cost approach was a useful way to determine the
Property’s value, and Taxpayers do not indicate what alternate source Bates should
have used.
In Grand Prix, this Court vacated a trial court’s order setting a
property’s fair market value where an expert admitted his sales comparison
approach (one of two approaches accepted by the trial court) was flawed, and the
trial court failed to resolve differences in capitalization rates for the other
approach. This Court concluded:
Although it is the trial court’s prerogative to deem one
expert more credible than the other, the trial court must
explain its decision. Here, the trial court failed to
consider, and resolve, the differences in the two
capitalization rates and the fact that [the taxing
authority’s appraiser’s] sales comparison approach was
flawed, by his own admission.
Grand Prix, 51 A.3d at 282.
In Buhl Foundation v. Board of Property Assessment, Appeals and
Review of Allegheny County, 180 A.2d 900 (Pa. 1962), the taxing authority’s
appraiser testified that “he considered several factors in arriving at his conclusion
as to the value of the buildings involved, but an analysis of his testimony ma[d]e it
15
clear that the major and basic factor used was depreciated reproduction costs.”
Id. at 902 (emphasis added). Our Supreme Court explained:
The actual or fair market value, while not easily
ascertained, is fixed by the opinions of competent
witnesses as to what the property is worth on the market
at a fair sale. Many factors should be taken into account
by the expert witness in arriving at his estimate of value.
However, . . . reproduction cost is not one of them. In
fact, reproduction cost has no probative value for any
purpose in fixing the fair market value of improved real
estate for tax purposes.
Since an improper factor was admittedly used in
computing the assessment, the presumed validity thereof
was overcome. Further, since the only evidence offered
in support of the assessment as made was this estimate
based upon improper considerations, the finding of value
of the court below, sustaining the assessment, cannot
stand. The finding of value by the trial court must be
supported by competent evidence.
Id. at 902 (citations omitted).11
In the instant action, Bates used all three valuation approaches with
similar results, and neither Bates nor the trial court relied primarily on the cost
approach in reaching the ultimate valuation determination. Thus, even if we were
to conclude that Bates’ cost approach was flawed, the trial court’s decision would
not be invalidated. Accordingly, Taxpayers’ argument fails.
11
In Buhl Foundation, the Court held that the appraiser’s opinion of
fair market value could not stand because he used the reproduction
cost, an improper factor. Buhl Foundation’s holding that
reproduction cost is an improper factor was subsequently
superseded by statute as explained in Appeal of Kriebel, . . . 470
A.2d 649, 651 n.3 ([Pa. Cmwlth.] 1984).
Grand Prix, 51 A.3d at 280 n.3.
16
Finally, Taxpayers contend that the trial court erred by crediting
Bates’ opinion in which his sales comparison approach relied on comparables in
superior marketplaces, and he failed to make appropriate adjustments to reflect the
higher values in those markets. Specifically, Taxpayers argue that Bates’
comparables were not representative of the marketplace in Wyoming County.
Specifically, they point to the following admissions made by Bates:
 Wyoming County is 25 miles from Luzerne
County and 25 miles from Lackawanna County;
 Wyoming County has approximately 28,000
residents;
 Luzerne County and Lackawanna County are 9
times larger in population;
 The unemployment rate in Wyoming County is
greater than the unemployment rate statewide;
 Wyoming County is not accessible by Interstate;
 Route 81 is a major artery which is at least 25
miles away from Wyoming County;
 The Property is a design-build project;
 The traffic count at the Property is approximately
17,000 cars per day.
Taxpayers’ Br. at 47. Taxpayers maintain that the comparables Bates used were
not located in marketplaces similar to that in which the Property is located, or in
areas with similar population, traffic counts and similar distance from major
highways, and further, that there were significant differences in the floor plans of
the comparables Bates considered. They assert that Bates should have made
material adjustments based on these differences.
This Court addressed a similar argument in Aetna. There, the trial
court found, and the parties did not dispute, that the comparable sales approach
17
was the most appropriate method for valuation. The subject property was owner-
occupied. The taxing authority’s expert based his valuation of the property on
comparable properties that had been sold subject to a tenancy (Tenant
Comparables). The taxpayer in Aetna argued that “the Tenant Comparables [were]
significantly dissimilar to the [subject p]roperty because they involve[d] tenant(s)
in residence at the time of sale, whereas the [subject p]roperty [was] only owner-
occupied and would be vacant or tenant-less upon its sale” and that the expert’s
“reliance served to inflate the [p]roperty’s market value.” Id. at 278. Thus,
according to the taxpayer, the trial court should not have accepted the expert’s
testimony as competent.
In rejecting the taxpayer’s argument, this Court stated:
The courts of this Commonwealth have held that shared
features between properties can render them
substantially similar and able to be compared as a
matter of law and that, generally, any dissimilarities
[sic] is a matter that goes to the weight of the evidence
rather than its admissibility or competency. See
McKnight Shopping C[tr., Inc. v. Bd. of Prop. Assessment
of Allegheny Cnty.,] 209 A.2d [389,] 393 [(Pa. 1965)]
(stating that properties need not be identical to be
comparable and comparisons may be based, among other
things, on sales according to similarities in use, size, and
type of construction); Pennypack Woods Home
Ownership Assoc[’n] v. B[d.] of Revision of Taxes, . . .
639 A.2d 1302, 1306 ([Pa. Cmwlth.] 1994) (concluding
that taxpayer’s contention ‘that [the board’s expert] did
not take into account the differences between the newer
units that he used as comparables and the older
[taxpayer’s] units’ raised an issue of credibility). For
instance, this Court in Appeal of Avco Corporation,
Lycoming County, . . . 515 A.2d 335, 338 ([Pa. Cmwlth.]
1986), concluded: ‘Properties may be similar for
comparison purposes without being identical, and the
difference [sic] goes to the weight, i.e., the persuasive
quality, of the expert’s testimony. Of course, the
18
weight accorded to an expert’s testimony is for the
fact finder to determine.’
Aetna, 111 A.3d at 279-80 (emphasis added). The Court further stated:
Turning to [the taxpayer’s] argument that [the taxing
authority’s expert] Abissi was required to make an
adjustment to the [p]roperty’s market value because he
used Tenant Comparables, our decision in In re Appeal of
Property of Cynwyd Investments, 679 A.2d 304 (Pa.
Cmwlth. 1996), is informative. In that case, the taxpayer
argued that the testimony of the expert for the board of
assessment was incompetent because the expert did not
make an adjustment for leases encumbering the property.
This Court disagreed, noting that the ‘expert testified that
he did consider the existing leases but made no separate
calculation in determining . . . the market rental value of
the property.’ Id. at 309.
We concluded in Cynwyd Investments that even if the
leases would have had a significant impact on the
property’s market value, once the expert testified that he
took the leases ‘into consideration but did not make an
adjustment, this failure to make an adjustment, if
anything, goes to the weight of his testimony and not its
competency.’ Id. See also id. at 310 (reiterating that an
allegation that an expert failed to properly consider a
factor affecting the value of the property ‘goes only to
the weight of the expert’s testimony’). Because the
trial court has exclusive control over the weight to be
assigned to the evidence, this Court in Cynwyd
Investments concluded that the trial court did not err in
finding the testimony of the board’s expert credible. Id.
at 310.
In Parkside Townhomes Associat[es] v. Board of
Assessment Appeals of York County, 711 A.2d 607 (Pa.
Cmwlth. 1998), this Court followed Cynwyd Investments
and concluded that where the expert considered the effect
that tax credits have on the property’s sale price and
determined that the tax credits were not relevant, the
expert’s ‘failure to make an adjustment of his
appraisal goes to weight of the [] testimony not its
competency.’ Id. at 611-12.
19
In this case, Abissi testified that the owner-occupied
nature of the building was a factor for valuation;
explained that he used the Tenant Comparables because
there were not many sales of owner-occupied buildings
to compare; and affirmed that he considered making
adjustments to the [p]roperty to account for this
dissimilarity by utilizing an adjustment formula. It is
unclear, though, whether Abissi actually made
adjustments after running them through his adjustment
formula. . . .
Nonetheless, as in Cynwyd Investments and Parkside
Townhomes Associates, Abissi expressly considered the
difference in occupancy between the [p]roperty and the
Tenant Comparables at the time of sale. Because Abissi
considered the owner-occupied nature of the [p]roperty
as a factor, his reliance on the Tenant Comparables does
not render his testimony incompetent, and, to the extent
that [the taxpayer] contests the amount of Abissi’s
adjustments or his failure to make adjustments, these
contentions challenge the weight of the evidence.
It is well-established that determination of evidentiary
weight is a matter reserved exclusively to the trial
court and that this Court cannot reverse such
determinations. See RAS Dev[.] Corp. [v. Fayette Cnty.
Bd. of Assessment Appeals], 704 A.2d [1130,] 1137 [(Pa.
Cmwlth. 1997)] (‘[I]t is well-settled that all matters of
credibility and evidentiary weight are within the
exclusive province of the trial court and that these
determinations are binding on this Court.’).
Aetna, 111 A.3d at 280-82 (citations and footnote omitted; emphasis added).
In the instant matter, Bates testified extensively regarding the process
he used in assessing the building’s value. He explained that “one of the things that
[he] looked at in finding sales that [he] wanted to consider to compare with the
subject [P]roperty was comparability. Not so much comparability of location . . .
but comparability of function.” R.R. at 286a. He acknowledged the differences in
20
the geographic areas between the comparables and the Property and explained his
rationale in using them:
The nature of these modern medical clinics is to serve a
neighborhood, not an entire region. A major hospital,
like Geisinger Wilkes-Barre, Geisinger Danville, they are
regional. To them, the highway - major highway access
becomes significant, but for a neighborhood service
facility, like the subject, like most of these, it’s serving a
relatively small area because a few miles away is
something competitive in most cases. Now, in terms of
traffic count, people don’t drive down the road and
suddenly pull into a medical office the way they would at
McDonald[’]s or a gas station, so traffic count can be
beneficial in terms of visibility, but it has a – the other
side of that sword is that it can make it difficult to get
into the [P]roperty.
R.R. at 379a-380a. He later expounded:
In the current market for real estate to serve the medical
needs of a community, the concept definitely is a hub and
spoke. The hub being the general or critical care
hospital, the spokes – the end of the spokes are these
neighborhood clinics that serve small areas of the greater
community. Geisinger was one of the first proponents of
this scheme, having regional medical offices, now
regional clinics, but other hospitals are adopting a similar
model so it’s not so much important as to what the
county population is. What you do is you look at the
nature of the neighborhood. The other factor about the
larger population areas is there is a huge supply of
medical practitioners and of the buildings that serve them
so for example, I mentioned that Exton, which is a
relatively small area with good population, I will admit,
has a hundred - I counted 181 medical service providers.
OK, we have about nine or ten here in Wyoming County.
Now, what does that mean? It means that the medical
expenditures by patients are split up into many more
segments. It also means there are many more medical
buildings out there so if someone is unhappy with the
building that he’s in, he can leapfrog to another building
much more easily than that would be possible here in
21
Wyoming County. It would necessitate new construction
here whereas there’s an inventory of medical office
properties that are adaptable and represent alternatives.
R.R. at 426a-427a. He stated, however, that he gave the various locations differing
characteristics consideration, see, e.g., R.R. at 371a, and made adjustments based
upon the differences in the types of properties he used as comparables. See, e.g.,
R.R. at 243a-245a, 366a, 915a-921a. Given that Bates considered these
differences in the nature of the comparable properties, the differences themselves
do not “render his testimony incompetent, and, to the extent that [Taxpayers]
contest[] the amount of [Bates’] adjustments or his failure to make adjustments,
these contentions challenge the weight of the evidence.” Aetna, 111 A.3d at 281
(emphasis added).
In contrast, the trial court noted that Lesavoy
defined market value utilizing the federal financing
definition as opposed to the definition adopted by the
Pennsylvania Supreme Court. He further testified that he
utilized bank[] sales in his sales comparison approach.
The properties that [Lesavoy] used to compare consisted
of a diagnostic facility, a modern facility that was part
medical and part office, a smaller space and buildings
that required upgrades, whereas the [Property] is a
modern facility in a rural area.
R.R. at 1083a (citations omitted). The trial court found Bates more credible
“[b]ased upon the testimony of the experts, consideration of the methods and
approaches utilized by each in opining regarding values of the [Property] and a
review of the entire record[.]” R.R. at 1084a. There is sufficient record evidence
to support the trial court’s decisions. “Because the trial court has exclusive control
over the weight to be assigned to the evidence,” Taxpayers’ argument fails. Aetna,
111 A.3d at 280.
22
For all of the above reasons, the trial court’s orders are affirmed.
___________________________
ANNE E. COVEY, Judge
23
IN THE COMMONWEALTH COURT OF PENNSYLVANIA
Martin P. Mariano and Beverly A. :
Mariano, :
Appellants :
:
v. :
:
Wyoming County Board of Assessment :
Appeals & Revision of Taxes, Wyoming :
County, Tunkhannock Area School : No. 2489 C.D. 2015
District and Tunkhannock Borough :
ORDER
AND NOW, this 5th day of July, 2016, the Court of Common Pleas of
the 44th Judicial District (Wyoming County Branch’s) October 9, 2015 order and
October 29, 2015 amended order are affirmed.
___________________________
ANNE E. COVEY, Judge