Decision and Order
IN THE MATTER OF AN APPEAL PURSUANT TO S. 50 OF THE ASSESSMENT ACT
CONCERNING:
AND
Assessor Of Area #26 - Prince George
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Appeal No.: |
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Refer to as: |
McKellar v. Area 26 (2010 PAABBC 20100938) |
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Date of Decision: |
August 10, 2010 |
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Property: |
15013 Norman Lake Road, Prince George Rural |
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Heard: |
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Submissions: |
From the Appellant received June 28, 2010 |
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From the Respondent received June 24 & July 12, 2010 |
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Board Panel: |
Rosemary Barnes, Panel Chair |
INTRODUCTION
[1] This appeal is from the decision of the 2010 Property Assessment Review Panel (the Review Panel) with respect to the assessment of a recreational property located at 15013 Norman Lake Road in Rural Prince George, BC (the Property). The Review Panel determined the assessed value of the land at $87,600 and improvements at $195,000 for a total assessed value of $282,600. The Appellant, Duncan McKellar, is one of the owners of the Property. He contends that the assessed value is too high, in particular, the building value does not represent an accurate valuation of the building, and the increase in the building value over time is not justified. He further contends that the assessment of the Property is too high because it does not have water, plumbing, electricity or a sewage system. The Assessor argues that the assessment of the Property is in the range of actual value and takes into account the lack of services, and, therefore, should be confirmed
ISSUES
[2] For the 2010 roll, the Board must determine whether a property is assessed at actual, or market value, as of July 1, 2009. In considering whether a property is assessed at actual value, the Board must consider the total assessed value of the land and improvements together. The Board may also ensure that a property is assessed consistently with other similar properties in the municipality.
[3] The issues, therefore, are whether the total assessed value of the Property reflects the Property’s market value as of July 1, 2009 and whether the Property has been assessed consistently with other similar properties in the area.
DESCRIPTION OF THE PROPERTY
[4] The Property is located in a rural recreational neighbourhood situated along the north end of Norman Lake which is located 15 kilometres to the south-east of Bednesti and Berman Lake. It is known for its lack of a public boat launch and small community atmosphere. It lacks hydro and cellular phone coverage. The main traffic arterial route into the area is along Norman Lake Road.
[5] The Property consists of a 0.66 acre (28,750 sq. ft.) parcel with 131 feet of water frontage onto Norman Lake. The lot slopes moderately from the road to the main building site and gently from that point down to the waterfront (terraced by concrete stairs). The lot has a grassy shoreline with a rocky beach. The building is situated to allow for a good view of the lake. The site does not contain a septic system, and there is a standard covenant on the title that states that an approved waterborne sewage disposal system must be installed before any indoor plumbing can be installed in the building. However, there appears to be more than enough property to meet the requirements to install a system with approval from the regional district. Like other properties on Norman Lake, there are no supplied hydro or telephone services. It is zoned SR 1, Seasonal Recreation.
[6] The Property is improved with a one and a half storey, 1,535 square foot dwelling (on a crawl space) built in 1998. Although the dwelling is used only seasonally and has never been used as a primary residence, it appears that it has superior finishing as compared to the typical recreational cabin on Norman Lake. The interior walls are dry-walled and the bedrooms and incomplete bathrooms, with rough-in plumbing, are all partitioned and finished.
EVIDENCE AND ANALYSIS
[7] The evidence before me consists of a written submission from Duncan McKellar dated June 24, 2010. The Assessor’s submission consists of an appraisal report by Mr. Beau Rossel dated June 23, 2010 followed by a written response to Mr. McKellar’s submission on June 12, 2010.
What is the actual value of the Property as of July 1, 2009?
[8] Mr. Rossel is an appraiser employed by BC Assessment. In his appraisal report he uses the direct comparison approach to value. His market evidence consists of four sales, all lakefront properties located on Norman Lake Road. They range in price from $140,000 to $230,000.
[9] Sale No. 1 at 19104 Norman Lake Road is a full-time dwelling that sold in the summer of 2008 for $230,000. Mr. Rossel applies a 1.083% per month time of sale adjustment to Sale No. 1 to reflect upward market movement in the Norman Lake area over the past year. He explains that Norman Lake properties have typically been valued lower than neighbouring lakes due to the lack of hydro and the greater distance from the main highway and Prince George. However, he notes that this past year’s sales activity has indicated a spike in the level of interest in Norman Lake, causing the values of these properties to increase substantially in comparison to other properties on other lakes.
[10] Mr. Rossel points out that Sale No. 1 is a fully functioning dwelling built to a lower standard than the subject, although it does have use of an underground water source (artesian well drawing from a stream) and an installed septic system. He notes that the subject does not have a functioning septic but is fully plumbed to the point where all one would need to do is install a septic system and bathroom fixtures to have it function in the same manner.
[11] Mr. Rossel explains that, in his direct comparison approach to value, he treats the Property as a single-family dwelling because, in his opinion, its structure and materials are much more in line with newer houses built to modern standard construction. He notes that, despite the fact that the owners do not use the Property as a full-time dwelling; it has much greater potential to function as a dwelling than his comparable Sales No. 2 and No. 3 (selling at $150,000 and $140,000) located at 19095 and 20108 Norman Road, respectively.
[12] Mr. Rossel’s Sale No. 4 at 15011 Norman Lake Road is a partially completed structure that was built to the lock-up stage at the time of its sale. His adjustments to this sale reflect the amount of work needed to be done internally to bring it up to the same standard as the subject. He explains the adjustments reflect the market value of that remaining work to be done. He states that this comparable sold with a minimal amount of market exposure for $175,000 due to motivated sellers involved in divorce proceedings.
[13] Mr. Rossel’s Sales No. 2 through No. 4 all occurred in and around the July 1, 2009 valuation date. Therefore, he does not apply time adjustments to these sales.
[14] Mr. Rossel applies adjustments for site size and slope, as well as for the services in place for Sale No. 1 (cistern and septic). He applies adjustments for age, size, building type, condition and quality of the improvements as compared to the Property. The adjusted sale prices range from $243,000 (Sale No. 3) to $306,900 (Sale No. 1). The adjusted sale prices of Sale No. 2 and Sale No. 4 are $262,500 and $280,200, respectively.
[15] Mr. Rossel contends that the best indicator of value for the Property is Sale No. 1 (the full-time dwelling) followed by Sale No. 4 (as having the best chance, once completed, to function and sell in a similar manner as the Property). He notes that the average value indicated by the four comparables is $273,150, slightly lower than the Property’s assessed value. He argues that the Property’s assessed value of $282,600 falls within the indicated range of value and should be confirmed.
[16] I do not agree that Mr. Rossel’s Sale No. 4 is a good comparable to use in the appraisal of the Property. According to Mr. Rossel’s market evidence, it sold with a minimal of market exposure by very motivated sellers. Further, it was a partially completed structure that was built to lock-up stage when it sold. It required a fairly large adjustment ($102,500) to reflect the amount of work needed to be done internally to bring it up to the same standard as the Property.
[17] While I do agree that Sale No. 1 is a better indicator of value for the Property, it sold one year prior to the July 1, 2009 valuation date. Mr. Rossel has applied a time of sale adjustment to recognize and adjust for the upward market movement for properties on Norman Lake. He contends that his time of sale adjustment of 1.083% per month is conservative. However, he does not provide me with any data to support his time adjustment. So, while not discounting Sale No. 1 completely, issues attached to it (e.g. time of sale and adjustments for services) have convinced me that an average of the adjusted sale prices for Sales No. 1 through No. 3 is appropriate in this particular case.
[18] The average value indicated by the three comparables after eliminating Sale No. 4 is $270,800. I find that value to be a fair market value for the Property as at July 1, 2009.
[19] Mr. McKellar takes exception to the BC Assessment valuation of the Property as a “home” or full-time dwelling. He contends that it has always been regarded as a recreational lake property and has never been occupied or used as a primary, or even temporary, residence. He explains that the cabin was constructed in 1998 to a reasonable standard for a cost of approximately $87,000. In his opinion, the 2010 assessed value of $195,000 attributed to the building does not make financial sense because it implies that, after 12 years, the building would cost an additional $108,000 to replace, suggesting a 125% increase in building costs.
[20] Mr. McKellar states that he built the cabin so it could be used recreationally year round. For that reason it is well insulated and wired for electricity, should it ever arrive. He submits that to upgrade the cabin to a “home” would require the following improvements:
· A septic system
· An indoor toilet with plumbing
· A kitchen and bathroom sink, tub and shower fixtures
· A large propane storage tank, propane hot water system, including venting for appliances and bathroom
· A potable water well and pumping system
· A propane furnace, along with heat ducting.
· Two generators to run the home and septic backup and a building to house them.
[21] Mr. McKellar provides copies of estimates and quotes for the upgrades required to make the cabin a full-time dwelling. His total cost estimate is $66,101. Mr. McKellar explains that this exercise provides a figure for “home” valuation one can use to compare similar homes on waterfront properties around Prince George. He states that, given this information, one can then compare the assessment of his property to this value. $282,600 (assessed value) + $66,000 (quotes for upgrades) = $348,000 for his 1,050 sq. ft., plus open loft, home on Norman Lake.
[22] Mr. McKellar submits that, using this analysis, there is only one property on the lake assessed higher, and that property is located at 8170 Norman Lake Road. It is assessed at $383,000, was built as a home, is quite new and is probably double the square footage as compared to his. He notes that the next highest finished one storey home is assessed at $293,800. Again, he suggests that the home on this property is quite a bit more substantial than his building.
[23] Mr. Rossel is critical of Mr. McKellar’s analysis involving the costs involved to bring his cabin up to “home” status. He points out that Mr. McKellar neglects to provide for the cost of labour in any of his quotes thus providing for a much lower assumption of cost to build. Further, Mr. Rossel contends that the purchase and installation of all of the components referred to by Mr. McKellar would likely be found at a lower cost if they were purchased simultaneously as part of a larger package from a single or pair of contractors. He goes on to explain that the overall cost to install these components is not necessarily directly related to their contributory value to the total market value of the Property. For example, Mr. McKellar’s total costs to install, septic, plumbing, heating ducts/furnace, propane, etc, total $66,000. Mr. Rossel contends that does not mean that the value of the Property would, therefore, rise by that amount to create the new total of $348,000 as Mr. McKellar claims. Mr. Rossel states that BC Assessment recognizes that, while the cost to install a septic and potable water source would be fairly substantial, the total value of those improvements to the Property is not necessarily a dollar-for-dollar reflection towards the market value He gives, as an example, a typical market adjustment for the presence of a septic system in this area of $10,000, the presence of a drilled well $9,000, and the presence of a filtered system to pump and filter water from the lake or another source $3,500. Mr. Rossel states that these market factors have been determined by sales analyses on waterfront properties in this area and recognize the contributory addition to value on these properties, rather than the simple cost of installing new improvements. In Mr. Rossel’s opinion, the actual adjusted market cost based on market calculations would produce a value for the Property in the $310,000 to $325,000 range.
[24] Mr. Rossel says that Mr. McKellar’s contention that his property is the second highest assessed value on the lake is not true. He notes that the property referred to by Mr. McKellar at 8170 Norman Lake Road is actually located on Berman Lake. He points out that Norman Lake Road runs through Berman Lake before splitting off into Norman Lake further south. Mr. Rossel submits that, while that property does have well, septic and power, it is located on a less desirable piece of waterfront with a steeper bank on a smaller, inferior lake. The building is older (1980 with minor upgrades) and of a lower quality than that of the subject.
[25] As for the one storey home Mr. McKellar refers to which is assessed at $293,800, Mr. Rossel points out that it is smaller, 17 years older, lacks in interior design and finish and is much more rustic as compared to the McKellar property.
[26] Mr. Rossel contends that, of all the properties listed as dwellings on Norman Lake, the Property is actually assessed as the fourth-highest. The other three dwellings all have septic systems, and one draws water directly from the lake with a pump. The property that is assessed the highest at $389,100 is a slightly older (1992) dwelling with full bathrooms and finished to a greater degree as a dwelling, as compared to the subject.
[27] As part of his submission, Mr. McKellar uses two methods to compare property values of lakefront properties in the area. He provides copies of real estate listing information for five comparables located in the rural Prince George area.
[28] Mr. McKellar`s first method compares cabins that are similar to his in the marketplace. He provides information on two comparable properties located on Cluculz Lake. They are listed properties that have not yet sold. He describes the first comparable as a 1,000 square foot cabin in superb condition listed at $199,760. He submits that this is well below the $282,600 assessed value of his property, a difference of $82,840. The second comparable is a 1,332 square foot, year-round lakefront cabin listed at $178,900. He says that this property has many similarities to his and is priced well below his assessment, a difference of $103,700.
[29] His second method compares his cabin, including the cost it would take to transform it into a home (as per his previous analysis, $282,600 + $66,000 = $348,000) to other similar “home type” waterfront properties in the area. Mr. McKellar provides listing information for three comparable properties in the area. Two of the properties are located on Ness Lake and one on Bednesti Lake. He describes the fully finished homes comparing their list prices to the $348,000 that he has calculated as the amount his property would be worth after upgrades to bring it up to the same standard as a full-time dwelling. He points out that the two properties on Ness Lake are listed for substantially less ($68,000 to $78,000) than the $348,000 value that he has assigned to his property. The Bednesti Lake home is listed at $349,000 is twice the size of his cottage, and located closer to Prince George.
[30] Mr. McKellar contends that, based on his market evidence; his property is assessed above market value by approximately $80,000. He submits that a fair market value for the Property should be in the range of $190,000 to $200,000.
[31] Mr. Rossel submits that Mr. McKellar’s initial method of comparison is flawed in that he takes his estimated direct costs to fully complete the home and applies it to the market value already assigned to the Property. Mr. McKellar then takes this figure and compares it to what he believes are similar properties on other lakes. Mr. Rossel states that this methodology is flawed for several reasons. He notes that all of Mr. McKellar’s comparables are located on different lakes than that of the subject and therefore, are in a different market set. Further, he points out that these properties have not yet sold so Mr. McKellar’s evidence relies on an assumption that the asking price is reflective of the value, which is not always the case with waterfront properties. In addition to the fact that these properties have not yet sold, there has been no attempt to recognize or adjust for any changes in the marketplace between the valuation date of July 1, 2009, and today’s market. Mr. Rossel states that, as indicated in his original report, the market for properties in Norman Lake has increased substantially in 2009, especially when compared to the properties on other lakes.
[32] Mr. Rossel critiques each of the five comparables provided by Mr. McKellar. In each case he contends that they are not comparable because of size, age, building quality, quality of waterfront, or other factors affecting them that differ from the Property. Mr. Rossel contends that nothing in Mr. McKellar’s submission indicates that his estimation of the Property being $80,000 too high is based on substantive data.
[33] I have several difficulties with Mr. McKellar’s market evidence. As noted by Mr. Rossel, his comparables have not yet sold. List prices may give a general indication of value but they do not represent an actual sale, or market value, only a proposed value. Further, Mr. McKellar has not applied adjustments to reflect differences between his comparables and the Property.
[34] I concur with Mr. Rossel that the methodology used by Mr. McKellar to evaluate a market value for the Property is flawed. His methods are not accepted appraisal practice. Therefore, I find that I can place very little weight on their results.
[35] Mr. McKellar’s submission includes a spreadsheet comparing the assessed values, sale dates, sale price and basic description of six properties located on Norman Lake Road. The sale dates range from April 15, 2009 to August 5, 2009 with sale prices ranging from $115,000 to $175,000. Three of the properties are the same comparables used by Mr. Rossel in his direct comparison approach. Mr. McKellar points out that this market evidence shows that no properties on Norman Lake sold for over $175,000 in 2009.
[36] Mr. Rossel responds to Mr. McKellar’s comparison of these properties. He points out that the descriptions of the properties do not highlight any differences in size, age, location, building material quality or design. He contends that each of these sales are of older, smaller, lower-end cabins (with the exception of 15011 Norman Lake Road, Sale No. 4) and all indicate a general increase in values in that area. Mr. Rossel submits that Mr. McKellar’s value estimate of $195,000 to $200,000 is grossly low, given that properties much older and smaller were selling for $140,000 to $150,000.
[37] I find that Mr. McKellar’s submission comparing the 2009 sale prices of six properties with their 2010 assessed values does little to help me determine actual value for the Property. In order to determine actual or market value, I prefer evidence of recent sales along with appropriate adjustments to reflect differences between them and the Property.
[38] The most convincing market evidence before me is that provided by Mr. Rossel. He analyzes four sales, all on the same lake, adjusting them for differences as compared to the Property. Although I have discounted his Sale No. 4, as noted previously, I find that an average of the adjusted sale prices of the other three comparables is indicative of a fair market value of $270,800.
Has the Property been assessed consistently with other similar properties in the area?
[39] Mr. McKellar documents assessment information for the Property for the years 2000 to 2010. He points out that the assessed value seemed to trend up at a reasonable level from year 2000 to 2009, and then the building value almost doubled in a single year from 2009 to 2010 ($103,000 to $195,000). He is concerned that the total assessed value of the Property has increased by approximately 64% ($172,700 to $282,600) from 2009 to 2010.
[40] Mr. Rossel explains that one of the reasons for the increase in the building value is the increased market activity on Norman Lake in 2009. He states that the assessments of all properties on the lake increased substantially based on the sales activity during the summer of that year. Further, he notes that one of BC Assessment’s residential appraisers visited the site during a re-inspection project and determined that the building had much greater value than had previously been attributed to it based on its size, quality, and potential utility as a full-time dwelling.
[41] Mr. McKellar is concerned that the assessment of the Property increased by approximately 64% over the previous year’s assessment. The difference in the assessed value of a property from one assessment year to the next does not necessarily point to an inequity or inconsistency. There are many reasons why the assessment of a property changes from one year to the next. There may have been changes in inventory, market driven forces, or even under or over assessments in previous years.
[42] The principle of equity requires that similar properties be valued on a similar basis and that differences between them be adjusted for based on market evidence and appropriate appraisal judgment. I find that the evidence does not support a conclusion that the Property is assessed inequitably in comparison to similar properties in the area.
CONCLUSION
[43] I find the actual or market value of the Property as of July 1, 2009 to be $270,800. The allocation of value between land and improvements is to be approximately the same percentage as set by the Assessor.
ORDER
[44] The Board orders the Assessor to amend the 2010 assessment roll as follows:
Roll No. 26-57-757-40746.000:
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Land: |
Class 1 - Residential |
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84,000 |
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Improvements: |
$ |
$ |
186,800 |
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Total Assessed Value: |
$ |
$ |
270,800 |