Update (April 12, 2017): Below is a string of posts stretching over the past four years in which Minnesota Litigator emphasizes that “valuation is an inexact science” but that does not mean that valuations or appraisals are entirely manipulable and worthless. Sometimes, though, we wonder.
Last week, the Minnesota Supreme Court issued an opinion on an appeal from a tax court decision in which the Minneapolis Assessor’s Office determined a valuation for a particular property of $22,700,000 for 2008, $19,500,000 for 2009, and $17,700,000 for 2010.
The property owner’s qualified appraiser had advocated a valuation of $12,800,000 for 2008, $10,000,000 for 2009, and $9,800,000 for 2010 for the same property.
The City’s qualified appraiser had advocated a valuation of $25,000,000 for 2008, $16,000,000 for 2009, and $17,000,000 for 2010.
The “delta” of these valuations is extreme.
The disconnect between the parties’ valuations arose from three “key points”: (1) use of the “income approach” vs. the “market approach,” (2) “the date on which it would have been economically feasible to begin the development of a new downtown office tower,” and (3) “the choice of comparable sales under the market approach.”
It seems that neither side’s appraiser did anything “wrong” in his analysis — neither side’s valuation is “wrong” — but, paradoxically, it is impossible that both valuations are “right.”
When a discipline’s methodology is complex and includes multiple flexible variables, there will never be a “right” answer. Therefore, once the decision-maker reaches a decision (in this case, the tax court) based on experts in these complex contexts, it will be the party that has to establish the decision-maker was “wrong” that faces an almost unwinnable battle… (in this case, Macy’s Retail Holdings, Inc.)