In North Carolina Dep't of Transportation v. Mission Battleground Park, No. 361PA16 (Mar. 2, 2018), the North Carolina Supreme Court confirmed that real estate brokers -- and not only appraisers -- can testify about the fair market value of condemned property.
The background is fairly routine -- the DOT condemned a portion of a tract of land for a highway project, made a $276,000 deposit which the landowner considered insufficient, and they went to trial. The owners asked a licensed real estate broker to testify about fair market value. He prepared a report which relied on the before-and-after method, and concluded that just compensation was $3.734 million.
The DOT sought to preclude him from testifying, arguing that brokers are limited by statute to preparing a report on probable selling price, and therefore could not testify as an expert regarding fair market value. The trial court agreed. The owners offered a different expert, who testified that compensation was $3.1 million. The jury returned a verdict for $350,000.
The owner's main contention on appeal was that the jury was entitled to consider the real estate broker's opinion of just compensation, but the Court of Appeals affirmed.
On discretionary review, the Supreme Court first rejected the DOT's argument that in order to testify, an expert must first prepare a report, and because real estate brokers are limited by statute to preparing reports on sales price, they cannot testify about fair market value. The statute prohibits brokers from "prepar[ing] a broker price opinion or comparative market analysis for any purpose in lieu of an appraisal when an appraisal is required by federal or State law." Sounds like not good news for the owners.
But the court concluded that even if producing a written report were a prerequisite to offering an opinion (something the court assumed without expressly deciding), the statute quoted above doesn't govern brokers' conduct when testifying in court. That is governed solely by the rules of evidence and the qualifications of experts. If a witness qualifies under Daubert (and North Carolina's standard for expert testimony) "that standard is both necessary and sufficient." Slip op. at 7.
Because the broker-witness did not prepare his report under the authority of the statute, but in order to testify, the statutory limitation did not apply. The court noted that "under DOT’s reading of the statute, subsection 93A-83(f) would bar a licensed broker from testifying about fair market value simply because he holds a broker’s license—even when an intelligent layperson, without any license, could potentially testify about fair market value." Slip op. at 10.
The next question the court answered was whether exclusion of the broker's testimony was prejudicial. Of course it was, because even though his testimony "may not have resulted in defendants’ receiving all of the compensation that they wanted, it almost certainly would have changed the jury’s analysis, and therefore would have changed the final dollar figure announced in the verdict." The standard for what counts as prejudice when evidence is kept from the jury is pretty low, and the court concluded it was "improbable" for the jury to not have been influenced by his testimony. Slip op. at 12.
Finally, the court rejected the DOT's argument that because North Carolina's statute on how to calculate compensation and damages in partial takings requires a comparison of the before-and-after fair market value, the broker could only testify about price. The court concluded that maybe the DOT should have let the broker testify and then attacked his conclusion (which in the DOT's view could only be about price) because there's a difference between FMV and probable selling price:
Fair market value, after all, is defined as “the price to which a willing buyer and a willing seller would agree. An analysis of probable selling price could take into account things that would not factor into an analysis of fair market value, though, such as individual motivations or hardships that might force either a buyer or a seller to accept a worse deal than he or she would if approaching the transaction willingly. In other words, fair market value and probable selling price are conceptually distinct, and an estimate of one cannot appropriately substitute for an estimate of the other. Indeed, DOT’s main argument for excluding Mr. Collins’ testimony is based entirely on the fact that subsection 93A-83(f) allows licensed brokers to estimate one but not the other in their BPOs and their CMAs.
Slip op. at 13 (citation omitted) (emphasis original).
Vacated and remanded. The jury is entitled to consider the broker's testimony, and he can testify about fair market value of the property.