Kelley v. Municipality Anchorage

Citation: 442 P.3d 725Docket: Supreme Court No. S-16980

Court: Alaska Supreme Court; May 31, 2019; Alaska; State Supreme Court

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The superior court upheld the municipality's tax valuation of a landowner's property, rejecting the landowner's claims of abuse of discretion by the valuation review board regarding the exclusion of certain evidence due to timeliness. The landowner contended that the board incorrectly applied valuation principles by not considering his purchase price or the sale price of a neighboring lot as definitive evidence. However, the assessor provided a rationale for favoring other evidence, which aligned with the municipality's appraisal methods, and the board's discretion in accepting the assessor's explanation was upheld. 

In September 2016, Leonard Kelley purchased Thunderbird Falls Lot 5 for $160,000. The municipality assessed the property at $318,900 using a market adjusted cost approach. Kelley appealed this valuation in February 2017, requesting time to gather further evidence and submitted documentation including his purchase settlement statement and a letter detailing various property deficiencies. The assessor requested itemized repair estimates by April 1, which Kelley did not provide. Despite this, he adjusted the valuation after a March site inspection, reducing the assessment to $259,800. Kelley later submitted additional evidence, including an MLS listing and details of a sale of a neighboring lot for $77,000, but ultimately did not accept the revised valuation, leading to the appeal to the Board of Equalization.

The Board conducted an appeal hearing on April 20, affirming the assessor's property valuation of $259,800. Kelley sought reconsideration, citing two procedural errors: the Board's refusal to admit documentary evidence regarding two other properties and the prohibition against direct questioning of the assessor. The Board granted reconsideration and set a new hearing for May 10, introducing procedures for both parties to question each other. However, the Board chair denied Kelley's documentary evidence due to his missed submission deadline, although Kelley was permitted to reference it during his testimony.

During the hearing, Kelley argued that Lot 5 was openly marketed for over 15 months and was purchased without duress for $160,000, based on its poor condition and necessary repair costs. He claimed neighborhood lot values ranged from $77,000 to $90,000, contrasting with the assessor's higher pre-recessionary comparable sales figures. The assessor defended the $259,800 valuation by explaining his "market adjusted cost approach," emphasizing the importance of exposure to an open market, typically accessed via MLS listings. He characterized Kelley's purchase as a "discounted cash sale," influenced by the property’s listing history and condition issues, and maintained that it did not represent fair market value.

Despite acknowledging the difficulty in finding comparable sales due to the property's condition, the assessor maintained that his valuation was equitable and aligned with the Municipality's assessment practices. The Board reaffirmed the Municipality's valuation, which was later upheld by the superior court. Kelley has since appealed to a higher court.

Independent review of administrative board decisions is standard, affirming those with a reasonable basis in fact or law requiring agency expertise. Taxing authorities have broad discretion in valuation methods and are not restricted to any specific formula. Decisions are upheld unless there is evidence of fraud or fundamentally flawed valuation principles. The exclusion of evidence by agency adjudicators is assessed for abuse of discretion.

Kelley appeals on three grounds: one procedural and two substantive. He contests the Board's exclusion of certain valuation evidence, which was found to align with the Anchorage Municipal Code, and thus not an abuse of discretion. His substantive claims involve the Board's dismissal of two sale prices as determinative of value. The Board acted within its discretion and based its decision on reasonable evidence.

Regarding evidence exclusion, Kelley sought to introduce documentary evidence of neighboring lots' values at a late stage, beyond the 15-day submission deadline mandated by the Anchorage Municipal Code. Despite Kelley's claims of good faith compliance, he did not substantiate these attempts. The Board's refusal to admit this evidence at the hearings was justified since Kelley introduced the substance of the evidence through testimony, and the Board permitted questioning of the assessor about value discrepancies. The precedent case, Brandner v. Municipality of Anchorage, supports the Board's decision as no good faith compliance was demonstrated, and the Board allowed Kelley's testimony regarding the omitted evidence.

The Board was not obligated to regard Kelley's August 2016 sale of a different lot for $77,000 as definitive evidence of value. Kelley argued that the Board failed to consider this sale as a fair market value transaction. However, the Board listened to the assessor's testimony regarding this sale and determined it was not definitive. The assessor explained that the Municipality assesses market value based on property exposure to the open market, and without an MLS listing, the sale price was deemed unreliable for this purpose. Kelley contended that various methods, such as posting a 'For Sale' sign, could expose a property to the market, criticizing the Municipality's exclusive reliance on MLS listings as a flawed valuation principle. He referenced the case CH Kelly Trust v. Municipality of Anchorage to support his argument, but did not clearly explain its relevance. In that case, the failure to consider auction prices was deemed a significant error, while in Kelley's situation, the assessor did consider the sale but concluded it did not reflect true market value due to the lack of assurance of market exposure.

Additionally, Kelley argued that the Board erred in not treating his cash purchase of Lot 5 for $160,000 as conclusive evidence of its value. He claimed cash sales represent the accepted definition of market value, citing a statutory definition of 'full and true value' related to municipal taxation. Kelley emphasized that the sales comparison approach is the most reliable method for estimating market value and referenced an appraisal manual supporting this method for single-unit residential property valuation.

The Municipality employed a comparable sales approach to value Lot 5, presenting a 'Land Sales Adjustment Grid' that indicated a value range of $96,800 to $161,000, supporting its assessed value of $112,900. However, the assessor did not consider the price Kelley paid for Lot 5 as indicative of its market value, deeming it a non-arm's length, discounted cash sale. The assessor noted that estate sales typically do not reflect market value, especially with property condition issues, and cited the rapid price drop of the property as evidence of seller duress.

Kelley challenged the Municipality's valuation principle, asserting it wrongfully excluded cash and estate sales from consideration. The assessor clarified that his methodology was not arbitrary and that such sales often indicate that the price does not represent market value. The court found the Municipality's valuation approach reasonable, affirming the Board of Equalization's decision, which upheld the original assessment. Additionally, procedural rules were outlined regarding evidence submission and access to property records, emphasizing the consequences of failure to provide access. The case referenced multiple precedents to support these positions.