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Volume 5 - Opinions of Counsel SBEA No. 28

Opinions of Counsel index

Assessments, generally (assessment in excess of purchase price) - Real Property Tax Law, § 306:

The “full value” of a parcel of real property generally means the “market value” of such parcel. Thus, a recent sale of the property to be assessed is generally an accurate indication of its full value. However, where the sale is not between a willing buyer and willing seller under ordinary market conditions, the sales price may not be a reliable indicator of value. It is, therefore, possible for the assessment of a recently sold parcel to exceed its purchase price.

We have received an inquiry concerning the assessment of property. It is stated that the assessment in question is unfair because it exceeds the buyer’s purchase price.

In this case, the property in question had been on and off the market for some time and the eventual buyer had been attempting to purchase it for three years before he successfully out-bid other interested parties and completed the purchase thereof from a college. We have also learned that the buyer’s bid price was $70,000 and that the assessment initially established by the assessor on the property was $99,840, subsequently reduced to $89,480 by the board of assessment review. Apparently the property was not located near enough to the college, nor of sufficient size, to be of much value to it in any future development plans.

An answer to the complaint that the assessment of the property exceeds the purchase price thereof necessarily requires a brief summary of the principles which govern assessment procedure in New York State.

Section 306 of the Real Property Tax Law requires all real property in this State to be assessed for purposes of taxation at “full value.” In the matter of the actual assessment of any real property, the determination of its full value is necessarily an inexact process. The many factors which must be considered include the size, location and accessibility of the lot; the type of construction, age, and state of repair of any buildings located on the property; the highest and best use of the parcel, and the general trend of market values in the area (see, e.g., Pepsi-Cola Co. v. Tax Com’n of City of New York, 19 App.Div.2d 56, 240 N.Y.S.2d 770). However, the figure which is generally considered to be the most accurate indication of the full value of a parcel of real property is its “market value,” the latter term having been defined as the price a willing buyer will pay a willing seller “under ordinary circumstances,” i.e., in an arms-length transaction in which neither party is compelled to act (Heiman v. Bishop, 272 N.Y. 83, 4 N.E.2d 944). The Court of Appeals, has recently reaffirmed the principle that “full value” generally means “market value” unless the latter cannot be determined in which case other tests of full value must be relied upon (Matter of Hellerstein v. Assessor, Town of lslip, 37 N.Y.2d 1, 332 N.E.2d 279, 371 N.Y.S.2d 388).

However, the decision in Hellerstein, supra, did not change the general rule (on which authorities have long agreed) that while a recent sale of the property to be assessed may be the most accurate indication of full value in many cases, it is not necessarily conclusive, and may, in fact, be of little value where the transfer is “. . .made under stress . . .” (Matter of 860 Fifth Avenue Corp. v. Tax Com’n of City of New York, 8 N.Y.2d 29, 167 N.E.2d 455, 200 N.Y.S.2d 817, 819) or where the transfer is found to be “. . .abnormal in any fashion” (Lane Bryant, Inc. v. Tax Com’n of City of New York, 21 App. Div.2d 669, 249 N.Y.S.2d 994, 995, aff'd, 19 N.Y.2d 715, 225 N.E.2d 882, 279 N.Y.S.2d 175).  (See also, 16 McQuillin, Mun. Corp. § 44.100; 5-A Warren’s Weed New York Real Property [4th Ed.], pp. 449-450; Lee and LeForestier, Review and Reduction of Real Property Assessments, § 1:18 (1960).) Of particular value at this point in our consideration of the effect of a recent sale price on assessed value is the following quotation from the decision of the Appellate Division, First Department, in People ex rel. Four Park Ave. Corp. v. Lilly, 256 App. Div. 68, 37 N.Y.S.2d 733, 738, to wit:

In a tax assessment proceeding, evidence of the price paid upon the sale of the same property within a reasonable time after the taxable status date furnishes some, although by no means conclusive evidence of value. In determining what weight is to be accorded such testimony, the time, the place, the circumstances and the conditions of the sale must be explored. Was the sale bona fide? Was it a distress sale? Was there a fair market? What were the terms of the sale? Has there been any change in conditions between the date of the sale and the taxable status date? All these questions would have an effect upon the worth of such evidence in fixing the value of property as of a given date. (emphasis added)

In the same vein, another court has noted a distinction between “price” and “value,” stating that,

Price is determined by short term factors and by the caprices of the market. Value on the other hand is dependent upon long term factors and is directly related to the intrinsic worth of the property that resists the impact of temporary and abnormal conditions. Neither price nor value can be determined by mathematical calculations, and value, even more than price, is a matter of judgment reached after a full consideration of all the relevant elements that may conceivably affect it. (emphasis added)

(People ex rel. Buck v. Rapp, 36 N.Y.S.2d 790, 796, aff'd, 266 App. Div. 709, 41 N.Y.S.2d 185, app.den, 266 App. Div. 821, 42 N.Y.S.2d 576).

The effect of the foregoing is that sales price is only reliable evidence of full value where it is clearly shown that the sale was between a willing buyer and a willing seller under “ordinary market conditions.” Whether these factors are present in the sale of a particular parcel of real property must, of course, be determined on a case-by-case basis. Thus, it has been held that normal market conditions did not exist in one sale because of the uncertainties and restrictions of war time (People ex rel. Kitchen v. Dicker, 76 N.Y.S.2d 725). Other courts have found that the “willing buyer/willing seller” concept was absent in a sale of real property by a concern in liquidation and that, therefore, the sales price was not a fair criterion of full value (In re Malajo Realty Corp., 60 N.Y.S.2d 15; see also, Appeal of Secretary of Banking, 355 Pa. 226, 49 A.2d 337; and, Treadwell Realty Co. v. City of Memphis, 173 Tenn. 168, 116 S.W.2d 997). Other instances where sales prices would not necessarily reflect “full value” would include a price paid at a public sale of property for delinquent taxes (see, e.g., Davis v. Division of Tax Appeals, 135N.J.L. 250,51 A.2d 427), and a sale made to close out an estate.

Apparently, the assessor in this case concluded that the purchase of the property in question did not reflect a sale made between a willing buyer and a willing seller under normal market conditions. There appear to be several factors present which support his conclusion.

The first such factor is that the property had been on and off the market for some time before it was sold. This suggests, at least in part, that the seller was unable to get the price he was asking. Apparently, in fact, the owner immediately preceding the college, devised the property to the college rather than sell it for less than he wanted.

Secondly, as previously noted, the property was of little value to the college because of its size and location, and therefore it might be assumed that the college was more than a little anxious to sell the parcel.

Third (this factor is closely related to the second), it should be noted that under section 421(3) of the Real Property Tax Law, property owned by a nonprofit corporation (such as this college) but not actually in use for the exempt purposes of the corporation (i.e., lying idle with no plans for the immediate future to put it to use for such purposes) is taxable in New York. Thus, besides being of little use to the college the property also presented a tax liability - adding to the college's desire to rid itself of the property.

Fourth, the property had been donated to the college. Thus, in selling the parcel, the college was not seeking to recoup an investment as the ordinary private individual seller seeks to do, thus the seller might not have been demanding as high a price as one who had previously purchased the property.

Clearly then, conditions did exist on which the assessor may have reliably based his opinion that the property was worth more than the buyer actually paid for it. This could justify an assessment in excess of purchase price.

September 30, 1975