Decision and Order
IN THE MATTER OF AN APPEAL PURSUANT TO S. 50 OF THE ASSESSMENT ACT
CONCERNING:
Herbert Merritt
Nancy K Alwart
Hans Alwart
AND
Assessor Of Area #17 - Penticton
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Appeal No.: |
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Refer to as: |
Alwart et al v. Area 17 (2009 PAABBC 20091346) |
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Date of Decision: |
October 29, 2009 |
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Properties: |
17-67-715-02282.000, 4535 Mill Road, Penticton Rural 17-67-715-02283.000, 4545 Mill Road, Penticton Rural |
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Heard: |
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Submissions: |
From the Appellant dated July 20, & reply dated August 11, 2009 |
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From the Respondent dated July 20 & received on August 27, 2009 |
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Board Panel: |
Shiela Toth, Panel Chair |
INTRODUCTION
[1] The properties under appeal are two adjacent, 0.075 acre lots with frontage on Okanagan Lake, located north of Naramata (the Properties). The Appellants, Shirley Merritt, Herbert Merritt, Nancy Alwart and Hans Alwart, represented by Mr. Hans Alwart, contend the assessments are too high. Mr. Alwart states the lots cannot be developed with a year round residence and should be valued only as recreational property.
[2] The Respondent, the Assessor, submits the current assessments of $426,700 (for 4535 Mill Road) and $457,000 (for 4545 Mill Road) take into consideration the relative small size of the lots and the difficulties surrounding the development of them. He submits the current assessed values are representative of the market value for the each of the lots as of July 1, 2007.
ISSUE
[3] The issue is whether the assessed value reflects the actual value of the Properties. For the 2009 roll, the actual value of the property is the lower of the market value as of July 1, 2007 or July 1, 2008, in its condition as of October 31, 2008. The Assessor has concluded the lower value for the Properties is as of July 1, 2007. Mr. Alwart has not disputed this conclusion.
FACTS
[4] The Properties are located north of Naramata on the east side of Okanagan Lake. The Properties are rectangular in shape, each with an area of 0.075 acres, depth of 48 feet and lakeshore frontage of 69 feet. 4545 Mill Road has an older cabin with improvement assessed value of $32,000. 4535 Mill Road has a more modest older cabin with an improvement assessed value of $1,700. There is no disagreement with the assessed value of the improvements.
EVIDENCE AND SUBMISSIONS
[5] Mr. Alwart states his family has owned the two lots for almost 40 years. Each lot has an older, small cottage with no septic system. The use over the time has been seasonal and recreational. He submits that two years ago the owners made a decision to develop the Properties. However, after receiving an opinion from a qualified engineer that no acceptable sewage disposal system could be put on the property, they decided instead to list the properties for sale well below the assessed value. No willing buyers were found. He states a real estate agent suggests the Properties can only be sold as recreational property at approximately one quarter of their assessed values.
[6] Mr. Alwart includes a letter from the realtor that listed the Properties. The letter states even if the lots were combined they still would not meet the setback requirements for development of a standard septic system on lakeshore frontage. The new riparian regulations also impose a 15 metre setback from Okanagan Lake. The letter states an engineer went to the site and determined a septic system could not be installed. The letter indicates the Properties must receive a favourable geotechnical report because of the clay banks and a building variance because the properties cannot accommodate the standard setback before development. It concludes the Properties may have development potential only if Naramata installs a community sewage system. It summarizes, the Properties presently are lovely camping lots and a listing at $250,000 for both may attract buyers.
[7] Mr. Alwart includes a letter from Mr. B. Howard, a professional engineer. The letter states the Properties together do not have the available area for a sewage disposal field of any type given the specific setbacks. He also notes the Properties are only 0.9 meters above the high water level and the specification is 1.23 metres.
[8] Mr. Alwart includes a letter from the Area E Regional District Director, Mr. Chapman, which states there are no immediate plans for a community sewage system in Naramata. In Mr. Chapman’s opinion, the development potential for the Properties is limited due to the riparian area regulations and the site sewage disposal systems.
[9] Mr. Alwart suggests a value of $125,000 for each of the Properties, based on the opinion of the real estate agent.
[10] The Assessor submits an appraisal report for each of the Properties written by Mr. Walton, an appraiser with BC Assessment. Mr. Walton uses the direct sales comparison approach to value the Properties. In this approach, the value of the property is estimated by adjusting the sale price for any differences of comparable properties that have sold in the area.
[11] Mr. Walton uses the same four comparable properties for both Properties and refers to 4535 Mill Road as the subject property in both reports. Because the improvements on both of the Properties are minimal and the improvement value is not disputed, I find this oversight has minimal effect on Mr. Walton’s analysis for the Properties.
[12] Three of the comparable properties sold near the July 1, 2007, the valuation date, and are lake front lots in the Naramata area developed with year round residences. The fourth sale is a vacant lot on Osoyoos Lake. The comparable sales and Mr. Walton’s adjustments are summarized below.
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Address & Location |
Sale Price |
Sale Date |
Size/Lake Frontage |
Adjustments |
Adjusted Sale Price |
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1 |
4835 Mill Rd. Naramata |
$1,365,000 |
25June07 |
0.36 acre 88 ft. |
Improvements: -$94,600 |
$1,270,000 |
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2 |
440 Dorothy Ave., Naramata |
$1,200,000 |
14May07 |
0.17 acre 60 ft. |
Improvements: -$62,000 |
$1,338,000 |
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3 |
4353 Mill Rd. Naramata |
$2,000,000 |
07Sep07 |
0.36 acre 100 ft. |
Improvements: -$269,000 |
$1,731,000 |
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4 |
19433 95th St. Osoyoos |
$415,000 |
24Jun08 |
0.09 acre 86 ft. |
Time: -$31,125 Location: $153,550 |
$537,425 |
[13] Mr. Walton adjusts the first three sales by the assessed value for the improvements to estimate a residual land value. He includes no market analysis or data to illustrate that the split in the assessment values between land and improvements accurately reflects the market for a vacant lakeshore property.
[14] The Properties are each 0.075 acre in area with a 69 front feet on the lakeshore. The first three sales are over two to over four times the size of the Properties. Mr. Walton does a comparative analysis of the market value of waterfront footage for the Naramata area but makes no adjustment for overall differences in lot area. The size of the Properties is the major restriction to the potential use of the Properties as residential lots. I find the size differential an important consideration and an important adjustment when estimating the value of the Properties.
[15] Mr. Walton does not make any adjustment for lakeshore frontage although the first three sales have 25 to 45% more frontage. Mr. Walton states, in his opinion, 4835 Mill Road at a sale price of $14,436 per front foot is a conservative value; 440 Dorothy Road at $22,300 per front foot is a high end value; and 4345 Mill Road at $17,310 is at a representative front foot rate for residential properties in the Naramata area. Mr. Walton does not submit any market data to support his opinion.
[16] Because of the assessed value assumptions made to estimate a residual land value and because of the lack of any analysis of adjustments for differences in lot size and waterfrontage, I give the first three comparable sales little weight.
[17] The fourth sale is a vacant lot of similar size and with similar septic restrictions. Although similar in area, this comparable property has more lakeshore frontage but it is narrower than the Properties. Additional frontage is a benefit to a property while a narrower lot is a negative factor due to building difficulties caused by setbacks. I have no market data to make these positive and negative adjustments however I find this lot having a similar size is sufficient to consider it further.
[18] Mr. Walton includes market data for his location adjustment that indicates lakeshore frontage on Osoyoos Lake is valued at 40% less than comparable frontage on Okanagan Lake in the Naramata area. This percentage is based on the average of the sale price of five residential property sales on the Naramata lakefront compared to the average sale price of six residential property sales on Osoyoos Lake over the 2007 to 2008 time period.
[19] I find the fourth sale is the best comparable residential property because it is a vacant land sale of similar size with similar restrictions. However, for this property, the owner was able to utilize a septic holding tank and build a single family dwelling because a community septic system is planned in the near future.
[20] Mr. Walton also includes the sale prices of four resort recreation sites with seasonal use in Osoyoos. These lots are 0.041 acres each, or approximately 80% smaller than the Properties, and share common property and services including a common beach. The sites sold near the valuation date ranging from $150,000 to $165,000.
[21] Mr. Walton concludes the value of each of the Properties without any restrictions is $1,000,000. He submits the present assessment values of $426,700 and $457,000 reflect the negative adjustments for the small lot size and septic restrictions.
ANALYSIS
[22] Mr. Alwart has provided a letter from Mr. Howard, a professional engineer that concludes there is no feasible way of establishing a sewage disposal system for a single family home on either lot or as a combined property. Mr. Walton accepts this opinion as true and accurate. I find, for the Properties to have development potential in the foreseeable future, planning for a community septic system would need to be in place for the Naramata area.
[23] Mr. Alwart has provided a letter of opinion from Mr. Chapman, Area E Director. I give his opinion on riparian or geotechnical issues little weight because he is not an expert in either field. However, as the local representative of the regional district, I do give weight to his opinion regarding the potential and imminence of a community sewer system. Based on his opinion, I find the Properties are severely restricted for development in the foreseeable future due to no immediate plans for a community septic system.
[24] Mr. Alwart provides a letter from a realtor that confirms the restrictions discussed in the engineer’s letter and suggests a listing price at $250,000 for both properties. I place little weight on this estimate because there is no market data included to support it.
[25] Mr. Walton has based his market value on a highest and best use as residential lots. The Appraisal Institute of Canada defines highest and best use as that use which is physically possible, legally permissible, financially feasible, and maximally productive. The current use of the Properties is recreational. The tests of physically possible and legally permissible are impacted by the inability to access or build a septic system in the foreseeable future. I find the Properties fail to have a reasonably probable use as residential lots because of this impact and their highest and best use is their current use as recreational properties.
[26] I have found that the 19433 95 Street property in Osoyoos is the best comparable to the Properties as residential lots. Subsequent approval of a septic holding system for this comparable (because of the imminent development of a septic system in the area) made development possible on this site. Because the development potential was more immediate for this comparable, I find that this not a relevant comparable based on the highest and best use for the Properties.
[27] Typically an appraisal would have a highest and best use analysis along with properly supported adjustments for sales comparables with the same highest and best use. In this case, the only properties I have which have the same highest and best use as recreational properties are the four recreational lots on Osoyoos Lake.
[28] The sales of these lots need adjustments to compare them to the Properties because they do not have private lakeshore frontage, they share various services, they are smaller than the Properties and they are in a different location. Except for the location adjustment, the parties have not supplied me with their opinion on these adjustments nor have they provided me with any market data on these factors. On a straight line basis, the recreational lots are approximately 80% smaller than the Properties. This ignores the law of diminishing returns, where you would normally expect: the larger the site, the lower the value per square foot. If I use an 80% straight line adjustment for size, the lack of consideration of possible diminishing returns for the larger size of the Properties will be somewhat counter balanced by the lack of an adjustment for a common beach with the recreational lots.
[29] Given that the recreational lots are located on Osoyoos Lake, they need to be adjusted for the difference in location. The only adjustment I have for location is supplied by the Assessor (supported by some market data). By applying this 40% adjustment for location and 80% for size, the range in value for the land portion of Properties is $330,000 to $363,000.
[30] I have no evidence to give more weight to any one of the recreational lots therefore I find a value at the midpoint of the range or $346,500 is a reasonable estimate of market value.
CONCLUSION
[31] There is no dispute in the value of the improvements on the Properties. I find the assessed value for the land for each of the Properties should be $346,500.
ORDER
[32] The Board orders the 2009 Property roll be amended as follows:
Roll No. 17-67-715-02282.000:
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FROM |
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Land: |
Class 6 - Business and Other |
$ |
425,000 |
$ |
346,500 |
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Improvements: |
Class 6 - Business and Other |
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1,700 |
$ |
1,700 |
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Total Assessed Value: |
$ |
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348,200 |
Roll No. 17-67-715-02283.000:
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FROM |
TO |
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Land: |
Class 6 - Business and Other |
$ |
425,000 |
$ |
346,500 |
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Improvements: |
Class 6 - Business and Other |
$ |
32,000 |
$ |
32,000 |
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Total Assessed Value: |
$ |
457,700 |
$ |
378,500 |