The Virginia Supreme Court once famously noted that some things were so obvious, you didn’t need to cite any authority for the proposition. See Goldstein v. Old Dominion Peanut Corp., 177 Va. 716, 722, 15 S.E.2d 103, 105 (Va. 1941) ("We have so often said this that no citation for its verity is needed," referring to the rule that facts determined by a jury are generally accepted as true by a reviewing court).
Well, it looks like the court thinks pretty much the same thing when it comes to appraisal testimony in eminent domain. An appraiser can testify to the value of property he did not actually value, but about which he made assumptions based on his "experience." Res ipsa loquitur.
Get ready for a longer post, with some detail -- we think this is an important case, mostly because the court got some of the eminent domain fundamentals fundamentally wrong.
In Commissioner of Highways v. Karverly, Inc., No. 170282 (May 10, 2018), the court held an appraiser who concluded that a remainder parcel owned by a daycare facility which resulted from the taking of a strip of its land to build a multi-use trail (and for the future widening of the adjacent highway) may testify, even though he admitted he did not value the remainder, before or after the taking. Instead, he summarily concluded the remainder suffered no severance damages, without ever having actually valued the remainder.
The core question in the case was whether the strip take resulted in any damages to Karverly’s remaining property. It is settled Virginia law that the way to determine damages to the remainder is the “before and after” method, with the jury determining damages by subtracting the value of the entire remainder (improvements included) after the taking from the value of the entire remainder (improvements included) before the taking.
The owner’s appraiser determined that to address the problems caused to the remainder by the severance of the strip, the owner would need to move an existing fence, a "buffer" area, and a playground area, because they would, in the after condition, be too close to the new trail and future highway. He concluded that any reasonable user or purchaser of the property would move the playground fence, given that it was impounding water from the drainage easement and that the Commissioner took the right to widen the highway within 2 1/2 feet of the fence where children were playing. If the owner did not do these things, a potential buyer of the parcel would think the property is "inferior," and discount the price. Slip op. at 5. While there was no legal requirement to move the fence and playground, the owner’s appraiser concluded that a smart (“prudent”) owner would do so.
On what did he base this conclusion?
[The owner’s appraiser] arrived at th[is] [opinion] after "talking to appraisers and other real estate experts [and] brokers that actively buy and sell these types of properties."Slip op. at 6 (citation omitted). In other words, he did exactly what appraisers do—indeed are required to do by their professional standards]—he spoke to participants in the marketplace. That is also a well-recognized exception to the hearsay rule, and the only reason appraisers are permitted to testify to their conversations with others is to provide a basis for their opinion.
The Commission’s appraiser took a different approach. He did not need anyone telling him what the market would do. Oh no, he had been at this game for a long time and had "performed 'thousands of appraisals' during his career." Slip op. at 2. He concluded the remainder parcel wouldn’t suffer any damages as the result of the strip taking: the shape would remain the same (even if the size was reduced), the grade would not change, the utilities would not be affected, the zoning would be the same, the buildings would not be affected, nor would access change. Thus, he concluded, no severance damages:
Based upon these facts, Call concluded "that the land remainder, if vacant, would have the same highest and best use and value after as compared to before and [that] the property suffer[ed] no diminution as a result of the proposed acquisition." Furthermore, the "[p]roximity of the path" had "no measurable impact on the utility or value contribution of the existing improvements." In other words, Call explained, "whatever value contribution the improvements had in the before instance, they have the same value contribution in the after instance."Slip op. at 4 (citations omitted). Thus, the court concluded, the Commission’s appraiser "explained that he did value the remainder." Id. (emphasis added).
Well, actually no: the transcript reveals he testified he did not have any actual evidence about the value of the remainder, only that it "implies" in his conclusion. Here’s how he testified:
THE COURT: So you don't have any evidence of a fair market value of the residue before or after the taking; do you?THE WITNESS: The entire property, Your Honor?
THE COURT: Yes, sir.
THE WITNESS: No, I don't. But it implies in my report, whatever value contribution the improvements had in the before instance, they have the same value contribution in the after instance.
. . .
THE COURT: But the fair market -- there was no fair market value of the residue before and after?
THE WITNESS: That's correct, Your Honor.
Appx. at 132.
The owner objected, asserting the Commission’s appraiser could not base his conclusion that there was no damage to the remainder on what amounted to an assumption that there was no damage to the remainder. He had to actually value the property, and needed to base his conclusion on something more than his experience. The court sustained the objection and prohibited him from testifying.
The Virginia Supreme Court disagreed. The Commission’s appraiser could testify, with cross-examination being the tool to test his assumptions and conclusion. Here’s the crux of the court’s rationale:
Call [the Commission’s appraiser] explained that he "looked at everything that [he] could find, to find out the physical, functional, and economic characteristics of that property," and concluded that "there was no way in the world that the [remainder] was damaged in any way." Call rejected the [property owner’s appraiser’s] assertion that the remainder would be functionally obsolete because he rejected the first and indispensable predicate for doing so—that there was any dependable basis for the supposition that buyers in the market for daycare properties would require the relocation of the fence, the buffer, or the playscapes.Slip op. at 12 (emphasis original) (citations omitted).
But that, in our view, begs the question: on what did the appraiser base his conclusion that his belief "there was no way in the world" there was no severance damage, other than his bare assertion that he “looked at everything?” Nothing, according to the court, that is good enough. (To us, that validates the owner’s position during oral argument that the Commission’s appraiser’s opinion was "ipse dixit" (“if it ain’t Latin, it ain’t the law,” as a mentor of ours once remarked)).
The court compared the Commission’s appraiser’s approach with that of the property owner’s appraiser (which was admitted without objection), and concluded that both assumed things:
In other words, [the owner's appraiser] presupposed that buyers in the market for daycare properties would find the new multi-use trail and its potential consequences to be unacceptable—so much so that they would demand a $290,000 discount in the pre-take value of the remaining property if the fence, buffer, and playscapes were not relocated. In support of this assertion, [he] cited no industry standards or guidelines adopted by daycare centers.Slip op. at 6 (citation omitted). The owner’s appraiser also testified that the fence and playground must be moved because the taking also included the future road widening, which allowed a new highway immediately next to the playground. Appx. at 255-56.
The court criticized the owner’s appraiser’s approach, labeling his survey of market participants "supposition."
[The owner’s appraiser] came to this conclusion based on the supposition that, absent these mitigation measures, buyers in the market for daycare properties would deem the site an "inferior property" and "pay less for it because of that." [He] gave this view of market sentiment the name "functional obsolescence" and stated that it required a $290,000 discount in the pre-take fair market value of the remainder. He arrived at this figure after "talking to appraisers and other real estate experts, [and] brokers that actively buy and sell these types of properties."[The owner’s appraiser] stated that he "followed the accepted appraisal methodology in performing his appraisal," but cited no other sources, such as legal codes, published surveys, or industry literature, in support of his belief that the take, absent the relocation of improvements, would render any part of the remainder of the property functionally obsolete.
Slip op. at 11 (citations omitted). The court took him to task for not basing his opinion that the market would, in the absence of mitigation measures, consider the remainder "inferior" and discount the price on what the court considered "verifiable" sources:
In short, [the owner’s appraiser] identified no verifiable, objective basis for finding functional obsolescence. The functional-obsolescence assertion was wholly dependent upon [the appraiser’s] experience and his conversations with other experts. A similar observation can be made of Call’s rejection of [the appraiser’s] assumption.Slip op. at 15.
Thus, what was good for the owner’s appraiser should be good enough for the condemnor’s appraiser, according to the court.
But in our view, there is a huge difference between applying accepted appraisal methodology and surveying the market players to see if there might be severance damages, and concluding, based on only your own experience and assertion you “looked at everything” (except the players in the actual real estate market, apparently!) that there’s no way in the world that taking a part of the land would have absolutely no impact on the value of the piece from which it was cut.
Also, we don’t quite get why the court compared the two appraiser’s approaches. The Commission’s appraiser wasn’t offering rebuttal testimony, or a review appraisal. He was supposed to value the compensation and damages resulting from the condemnation, not criticize the owner’s appraiser’s methods or conclusions.
Despite that, the opinion frequently compares and contrasts the two appraisers’ approaches, even noting "the Commissioner’s expert, Call, rejected the appraiser’s assumptions and asserted that no adjustment costs were necessary." Slip op. at 12 (emphasis added). But he testified only during the condemnor’s case-in-chief, before the owner's appraiser ever took the stand. He did not offer rebuttal testimony, and he never valued any of the improvements, including the fence. He only concluded, based on his own experience, that he didn’t need to value the remainder because it was obvious it didn't suffer any damage.
A couple of thoughts about what this decision may mean down the road.
First, the Commission’s appraiser acknowledged he didn’t apply the before and after method, because he never actually valued the remainder:
THE COURT: But the land wasn't valued.THE WITNESS: The land was valued. The improvements weren't valued.
THE COURT: But the fair market—there was no fair market value of the residue before and after?
THE WITNESS: That's correct, Your Honor.
Appx. at 120-21. The admission he didn’t use the methodology required by Virginia law should have made the question of the admissibility of his assumptions irrelevant. We think that it remains an open question whether an appraiser can present his opinion of value to the jury when he admits he did not apply the method required in the situation presented, regardless of the assumptions he may have made.
Second, Karverly should put a stop to motions in limine which seek to exclude the owner’s (or anyone else’s) opinion of property’s value. The court concluded that valuation opinion based on looking at the "physical, functional and economic characteristics of the property" is admissible testimony, and that it is up to the jury what to make of it. The court made clear that an opinion based on an appraiser's experience—and not necessarily an actual valuation of the property or review of the market—should go to the jury and that any objection to that opinion goes to the weight not admissibility.
Finally, we find it very telling that the court pooh-poohed the owner’s appraiser’s "conversations with other experts," and concluded that this standard appraisal methodology (so much so it has a hearsay exception baked in), provides "no objective basis" for the appraiser’s opinion. The only reason appraisers are permitted to testify about their conversations with others (which otherwise would be inadmissible hearsay), is to provide the foundation for the appraiser’s opinion.
Commissioner of Highways v. Karverly, Inc. No. 11-70282 (Va. May 10, 2018)
