Paul A. & Sheila K. Gargano v. Board of Assessors of the Town of Barnstable (January 22, 2003)

COMMONWEALTH OF MASSACHUSETTS

APPELLATE TAX BOARD





PAUL A. & SHEILA K. GARGANO	v.	BOARD OF ASSESSORS OF 
THE TOWN OF BARNSTABLE

Docket No. F240385 (FY 1997)		Promulgated: 
January 22, 2003



	This is an appeal under the formal procedure pursuant to G.L. c. 59, §§ 64 and 65 from the refusal of the appellee to abate taxes on certain real estate in the Town of Barnstable assessed under G.L. c. 59, § 38 for fiscal year 1997.  
	Former Chairman Gurge heard this appeal.  Commissioners Scharaffa, Burns, and Gorton all joined him in the decision for the appellants.  
	These findings of fact and report are made at the request of the appellants pursuant to G.L. c. 58A, § 13 and 831 CMR 1.32.  

	John C. Fraser, Esq. and Paul A. Gargano, Esq. for the appellants.  

	Ruth J. Weil, Esq. for the appellee.  

FINDINGS OF FACT AND REPORT
	On January 1, 1996, Paul A. and Sheila K. Gargano were the assessed owners of a parcel of real estate located at 251 Green Dunes in the West Hyannisport section of the Village of Hyannisport of the Town of Barnstable.  The appellants had purchased the subject property in December 1991 for $950,000.  The irregularly-shaped parcel consists of approximately 8.93 acres of land, of which 2.66 acres are upland, 3.96 acres are wetland, and 2.31 acres are tidal.  The parcel also contains approximately 588 feet of sandy beach frontage on Centerville Harbor, which is part of Nantucket Sound, as well as approximately 1,500 feet of marshy water frontage on Hall's Creek along with twenty-eight feet of street frontage.  
The upland portion of the land, upon which the improvements are sited, is a plateau-like area on the northerly side of the parcel.  From the upland portion, the land slopes downward toward the surrounding wetlands.  Along the southerly side, the wetlands consist of primarily sandy soil with beach grass.  The sandy beach frontage is along the extreme southerly portion of the parcel.  The parcel's easterly side consists of marshy frontage along Hall's Creek along with adjoining sandy soil with beach grass.  A stone jetty extends along the extreme southeasterly part of the property.  The subject property is served with town water, electricity, and telephone.  A private septic system disposes of the sewerage.    
The appellants razed the then existing home in 1993 and built a new custom-designed, approximately 8,200-square-foot, two-story house with a construction contract price of $1,570,000.  The new house has ten rooms plus five full baths, three half baths, and an approximately 1,500-square-foot wing that contains an indoor swimming pool.  The property offers unobstructed water views of Nantucket Sound and across the Hall's Creek marshes to the Hyannisport Country Club area.  Construction on the present dwelling began in September 1994 and was completed in May 1996.  The property is further improved with a 1.5 story wood-framed six-car garage with an upper loft.    
For fiscal year 1997, the Board of Assessors of Barnstable ("assessors") valued the parcel and improvements at $2,389,100 and assessed taxes thereon at the rate of $13.91 per thousand in the amount of $33,232.38.  The assessors attributed $1,178,100 to the land and $1,211,000 to the improvements ($1,195,600 to the house and $15,400 to the garage).  The appellants timely paid the taxes without incurring interest.  On December 20, 1996, within thirty days of the sending of the tax bill, the appellants timely filed their application for abatement with the assessors.  On March 11, 1997, the assessors denied the application, and on April 9, 1997, the appellants seasonably filed their appeal with the Appellate Tax Board ("Board").  On the basis of these facts, the Board found that it had jurisdiction over this appeal.  
The appellants presented their case in chief through the testimony of four witnesses, the introduction of numerous exhibits, including their valuation expert's appraisal report, and the submission of a post-hearing brief.  The assessors defended their assessment through the testimony of five witnesses, the introduction of numerous exhibits, and the submission of a post-hearing brief.  
The appellants' first witness was Robert Whitty, the Director of Assessing for Barnstable.  Mr. Whitty explained most of the information on several property record cards for the parcel and described how the assessors valued the subject property for fiscal year 1997.  He also read from a document that he had previously provided to the appellants that clarified how the assessors valued waterfront parcels.  "Each buildable parcel is given either a one-acre, or in the case of waterfront property, a two-acre prime site.  The balance of the land is placed into one of three categories . . . .  Each category has a base acre price, and each is discounted based upon the number of acres within the specific category."  According to Mr. Whitty, the subject property was assessed as one buildable site with two prime acres valued at $427,500 each, four residual acres valued at $80,100 each, and 2.93 acres of marsh or submerged land valued at $2,700 combined.  Mr. Whitty also testified that the assessments of the improvements reflected that they were one-hundred-percent complete as of January 1, 1996.    
William Sterling Wall, an expert in conservation matters, was the appellants' second witness.  Mr. Wall identified the areas of the subject property that he considered coastal wetland resources subject to protection under the Wetlands Protection Act, the Wetlands Restrictions Act, and local wetland bylaws.  According to Mr. Wall, less than an acre of the subject parcel was unrestricted and ninety percent of the subject property was not developable as a matter of right.  The Conservation Commission, however, could authorize further development on the subject property and additions to the existing improvements.  
Michael W. C. Emerson also testified for the appellants.  Mr. Emerson specializes in solving engineering design and construction problems associated with many different types of property including residential dwellings.  As part of his assignment for the appellants, he examined the appellants' house and prepared a two-page report summarizing the construction deficiencies and the cost to cure them.  He found many problems, including ones relating to the house's structural underpinnings, wood and tile flooring, trim work, marble and granite counters, and the HVAC systems.  Mr. Emerson estimated the cost to cure these deficiencies was at least $700,000 and possibly between $800,000 and $900,000.  Mr. Emerson also acknowledged that only the structural deficiencies were safety concerns, and the other remediation issues that he raised were more quality of construction and materials concerns.  Mr. Emerson also reviewed and relied upon a comprehensive report prepared by Insurance Reconstruction Services, Inc.  That report set the cost for all repairs at $692,019 and the cost to rectify the structural problems at $59,250.
The appellants' final witness was their real estate valuation expert, Elaine Flynn.  As of January 1, 1996,  Ms. Flynn estimated the fair market value of the subject property at $1,480,000 and its "equitable assessment" at $1,330,000.  She used a cost approach to establish her estimates.  She stated in her appraisal report: "Neither the income capitalization approach nor the sales comparison approach was used."  
More specifically, she used ninety-percent of the cost to construct the house, as indicated by the construction contract, less the costs to cure the deficiencies in workmanship and materials, as estimated by Insurance Reconstruction Services, Inc.'s report, plus $750,000 for the value of the land, which she derived through a comparative land sale analysis.  She only used ninety-percent of the construction contract price for the cost of the house because she was advised by the appellants that the house was only ninety-percent complete as of January 1, 1996.  She considered the subject parcel's prime buildable area to be one acre in size and the remaining 7.93 acres to be residual land valued at $10,000 per acre.      
Ms. Flynn also explained the basis for the "fair assessed value" that she prescribed for the subject property.  Essentially, she reduced her estimate of the subject property's fair market value that she estimated using her cost approach by ten percent to reflect what she determined was the difference between fair market values and assessed values in Barnstable for waterfront properties for fiscal year 1997.  Without objection or exception from the appellants, the hearing officer struck Ms. Flynn's estimate of the subject property's "equitable assessment" or "fair assessed value" because she failed to meet the threshold requirements for demonstrating an intentional scheme of disproportionate assessment by the assessors.  In fact, the appellants did not introduce even a scintilla of evidence to support their contention that the assessors were involved in an intentional scheme of disproportionate assessment for fiscal year 1997.                       
The assessors' first witness was Arthur K. Marney.  Mr. Marney is the town surveyor for Barnstable.  He viewed the subject property and calculated the amount of actual marshland on the property as depicted on a map prepared for the appellants by Baxter & Nye, Inc., registered land surveyors and engineers (Exhibit D).  Using a planimeter, Mr. Marney calculated that only 0.78 acres of actual marshland were contained on the subject property.  
The assessors' second witness was Robert W. Gatewood, Barnstable's Conservation Administrator.  Mr. Gatewood first verified that Barnstable's Conservation Commission accepted the plan drawn by Baxter and Nye. Inc. (Exhibit D) as representative of the wetland coastal resource areas associated with the subject property.  He then discussed some significant differences between the subject parcel and many of the purportedly comparable parcels that Ms. Flynn used in her land sale analysis.  Lastly, he testified that development on property under the jurisdiction of the coastal and wetland regulatory acts and ordinances and the Conservation Commission, like the subject property, was not outright prohibited (except when endangered species are present), but rather was subject to performance standards, which, if met, would support development.  
The assessors called Mr. Gargano as their third witness.  He discussed several documents that had been admitted as exhibits and his original intentions when he first purchased the property in the early 1990s.   He acknowledged that the home that he constructed on the subject parcel has won some architectural design awards and, as Ms. Flynn testified, was ninety-percent complete as of January 1, 1996.  
The assessors' fourth witness was John H. Greene, an assistant assessor for Barnstable.  Mr. Greene estimated that Barnstable contains over 30,000 taxable real estate properties, including 21,000 single-family residences.  He described the procedure that the assessors followed in valuing the subject property for the fiscal year at issue.  For valuing the land portion of the property, the assessors first assigned two acres to the building site, 2.93 acres to wetland, and the remaining approximately four acres to residual land.  The assessors then used a comparative land analysis to value the acreage.  For the subject improvement, the assessors reviewed the applicable building permit to ascertain the cost of constructing the improvement and then sketched the building and input its components into their computer for analysis with other relevant construction schedules and data.  These values were then reviewed and evaluated and adjusted if, in the assessors' opinion, it was appropriate, to reach the assessment.  Mr. Greene also discussed the comparability to the subject property of three properties in Barnstable that had sold in 1996 for $2,450,000, $3,100,000, and $3,900,000.  
For their final witness, the assessors called       Mr. Whitty who had previously testified in the appellants' case in chief.  Mr. Whitty explained what documents from the assessors' office and town the Department of Revenue had reviewed before certifying the town's fair cash values for fiscal years 1995, 1996, and 1997.  He also explained how the assessors evaluated the workmanship and materials deficiencies associated with the construction of the appellants' house, once they became aware of them.  The assessors determined that one of these deficiencies was structural while the others were primarily cosmetic.  Accordingly, Mr. Whitty believed that the cost for repairing most of deficiencies did not detract dollar for dollar from the fair cash value of the house, as Ms. Flynn suggested.  Mr. Whitty believed that those parts of the house containing materials inferior to those required by the specifications or containing relatively minor construction or cosmetic defects still contributed to the overall value of the property, albeit to a lesser extent than if compliant materials had been used and no defects existed.  Mr. Whitty therefore disagreed with Ms. Flynn's approach for valuing the appellants' house, which subtracted dollar for dollar the entire list of Insurance Reconstruction Services, Inc. and Mr. Emerson's repair estimates, which reflected the cost of removing and then completely replacing all perceived defects and imperfections.      
On the basis of all of the evidence, the Board found that the subject property was overvalued for fiscal year 1997.  In rendering this finding, the Board found that   Ms. Flynn's appraisal methodology was flawed and unreliable.  First, her use of the cost approach to estimate the value of the subject property for the fiscal year at issue was not the most appropriate methodology for valuing the property.  The Board found that a comparable sales approach would have been more suitable, and as the Assistant Assessor, Mr. Greene, demonstrated, there were an adequate number of comparable sale properties available to support a comparable sales methodology.  At most, the value obtained from a cost approach should have been used as a check on the value derived from the comparative sales technique.  
In addition, according to the Uniform Standards of Professional Appraisal Practice (USPAP), Rule 2.2(a)(x), an appraiser must "explain and support the exclusion of any of the usual valuation approaches."  Ms. Flynn simply stated in her appraisal report: "Neither the income capitalization approach nor the sales comparison approach was used."  She did not adequately explain or support her decision to exclude, in particular, the comparable sales approach from her methodology for estimating the value of the subject property and, therefore, failed to satisfy this important professional appraisal standard.    
Furthermore, the Board found that the land sales that Ms. Flynn used in her methodology were not sufficiently comparable to the subject parcel.  They had either significantly less or no sandy beach frontage, were considerably smaller, were located in a less desirable neighborhood, contained difficult or limited water access, and/or had far less prominent views.  Her adjustments did not compensate for these differences.  
Moreover, the Board found that Ms. Flynn's dollar-for-dollar deduction for the cost to remediate construction deficiencies from the cost to construct the house ignored the value that even lesser grade or slightly deficient construction added to the overall value of the improvement.  Accordingly, the Board found that her methodology for estimating the fair cash value of the subject property for fiscal year 1997 was flawed and, consequently, of little                      probative value.  
The Board further found that the methodology that the assessors used to value the land portion of the subject property was appropriate under the circumstances and consistent with how they valued the land associated with comparable waterfront properties.  To the extent that the assessors may have erroneously included several acres of wetland or tidal land in the acreage that they ascribed to the subject, they only applied a minimal value of $2,700 to their total acres of wetland.  Accordingly, the Board found that any potential overvaluation attributable to this possible error was de minimis and more than offset by the fair cash value of the subject property suggested by the comparable sale properties.  The same is true with respect to possible square footage discrepancies between the assessors' understanding of the area of the improvements and their actual areas.    
Furthermore, the Board found that even though various conservation and wetland statutes and ordinances restricted development on much of the land associated with the subject property, they did not, except for minor portions, prohibit development altogether.  Any further development is simply subject to a permitting process similar to the one which the appellants had already used to build their present home.  The appellants did not provide any evidence demonstrating the effect of this permitting process on the subject property's value.  In addition, it appears that owners of the subject property are able to enjoy the privacy and protection from the public that their expansive property affords and to appreciate their unimpeded water views, all of which is provided by the residual or "restricted" portion of the land that the Board found adds considerable value to the property even in its present state.  At any rate, the Board determined that, despite the assessors' possible over-estimation of wetlands associated with the subject property and the presence of restrictions necessitating participation in a permitting process for any future development on much of the property, the overall assessment of the land and improvements was supported by comparable sales data introduced by the assessors.            
The Board also found that the improvements were only ninety-percent complete as of the relevant assessment date, January 1, 1996.  In their assessment, the assessors had considered them one-hundred-percent complete.  Accordingly, the Board reduced the assessment for the improvements by ten percent to reflect their correct degree of completion as of January 1, 1996.  In addition, the Board found that the cost of repairing the structural deficiencies identified by the appellants' witness, Mr. Emerson, and the report prepared by Insurance Reconstruction Services, Inc. was an appropriate consideration under the circumstances.  The Board adopted the $59,250 cost recommended by the Insurance Reconstruction Services, Inc.'s report as a reliable estimate of this cost.  On this basis, the Board calculated the fair cash value of the subject property for fiscal year 1997 as summarized in the table below.  


Assessed Value of Land	$ 1,178,100	
Assessed Value of Improvements	$ 1,211,000	
Less: 10% Value of Improvements	($   121,100)	
Less: Cost to Cure Structural Deficiencies	($    59,250)	
INDICATED VALUE	$ 2,208,750  	
ROUNDED FAIR CASH VALUE	$ 2,200,000	


Finally, the Board found that the appellants' allegation that the assessors were biased against them in setting the assessment for the subject property for fiscal year 1997 was unfounded.  The Board's finding that the assessment was supported by comparable sales is perhaps the best indicator of no bias.  In addition, the Board found that the assessors were not aware of the ninety-percent completion of or structural issues associated with the subject property as of January 1, 1996.  
On the basis of all of these subsidiary findings, the Board issued a decision for the appellants abating $2,630.38 in real estate taxes assessed for fiscal year 1997.  

OPINION

	The assessors have a statutory and constitutional obligation to assess all real property at its full and fair cash value.  Coomey v. Assessors of Sandwich, 367 Mass. 836, 837 (1975) (citations omitted).  See Part II, c. 1, § 1, art. 4, of the Constitution of the Commonwealth; art. 10 of the Declaration of Rights; G.L. c. 59, §§ 38, 52.  Fair cash value means fair market value, which is defined as the price on which a willing seller and a willing buyer will agree if both of them are fully informed and under no compulsion.  Boston Gas Co. v. Assessors of Boston, 334 Mass. 549, 566 (1956).
	The burden of proof is upon the taxpayer to make out its right as a matter of law to an abatement of the tax.  Schlaiker v. Board of Assessors of Great Barrington, 365 Mass. 243, 245 (1974).  The taxpayer must show that the assessed valuation of its property was improper.  See Foxboro Associates v. Board of Assessors of Foxborough, 385 Mass. 679, 691 (1982).  The assessment is presumed valid until the taxpayer sustains its burden of proving otherwise.  Schlaiker, 365 Mass. at 245.  In appeals before this Board, a taxpayer "may present persuasive evidence of overvaluation either by exposing flaws or errors in the assessors' method of valuation, or by introducing affirmative evidence of value which undermines the assessors' valuation."  General Electric Co. v. Assessors of Lynn, 393 Mass. 591, 600 (1984) (quoting Donlon v. Assessors of Holliston, 389 Mass. 848, 855 (1983)).  
Generally, real estate valuation experts, the Massachusetts courts, and this Board rely upon three approaches to determine the fair cash value of property: income capitalization, sales comparison, and cost reproduction.  Correia v. New Bedford Redevelopment Authority, 375 Mass. 360, 362 (1978).  "[S]ales of property usually furnish strong evidence of market value, provided they are arm's-length transactions and thus fairly represent what a buyer has been willing to pay for the property to a willing seller."  Foxboro Associates v. Board of Assessors of Foxborough, 385 Mass. at 682.  Sales of comparable realty in the same geographic area and within a reasonable time of the assessment date contain credible data and information for determining the value of the property at issue.  McCabe v. Chelsea, 265 Mass. 494, 496 (1929).  "The sales comparison approach is applicable to all types of real property interests when there are sufficient recent, reliable transactions to indicate value patterns or trends in the market."  The Appraisal Institute, The Appraisal of real Estate 419 (12th ed., 2001).      
In the present appeal, the appellants attempted to prove that their property was over-valued using a cost approach.  The Board found and ruled, however, that a comparative sales approach was a more appropriate methodology under the circumstances.  Id.  "The introduction of evidence concerning the value based on [cost] computations has been limited to special situations in which data cannot be reliably computed under the other two methods."   Correia v. New Bedford Redevelopment Authority, 375 Mass. at 362.  The Board found and ruled here that no such "special situations" existed.  
The Board further found and ruled that the cost approach that Ms. Flynn employed was flawed, unreliable, and of little probative value.  The Board also found and ruled that Ms. Flynn did not adequately explain or support her decision to eschew comparative sales methodology, as required by USPAP Rule 2-2(a)(x), which states: "The Self-Contained Appraisal Report must explain and support the exclusion of any of the usual valuation approaches."  In addition, the Board found and ruled that the overall assessment for the subject property was supported by the comparable sale properties in evidence.  Because the Board also found and ruled that the improvements associated with the subject property were only ninety-percent complete as of January 1, 1996, the Board reduced the assessment attributable to the improvements by ten percent of their assessed value. The Board further reduced the subject property's assessment by the Insurance Reconstruction Services, Inc.'s estimate of the cost necessary to repair the structural and safety deficiencies associated with the construction of the house.  The assessors were not aware of these factors when they assessed the subject property.  The Board found and ruled that further dollar-for-dollar reductions for workmanship and materials discrepancies were not appropriate where, as here, the existing construction still contributed to the overall value of the property.  The appellants did not offer any other valuation methodology for estimating the effect, if any, on the value of the subject property created by these construction discrepancies.
  Lastly with respect to valuation, the appellants "provided no evidence that the [permitting] procedures required would be so burdensome as to affect the fair cash values of . . . the subject locus," Erving H. Cline v. Assessors of Canton, 20 Mass. App. Tax Bd. Rep. 36, 41 (1996), or that the lower assessments accorded the residual and wetland portions of the subject property did not adequately account for them.  Accordingly, the Board found and ruled that the appellants did not meet their burden in this regard.
	 "If taxpayer[s] can demonstrate in an appeal to the Board that [they] ha[ve] been the victim of a scheme of discriminatory, disproportionate assessment, [they] `may be granted an abatement . . . which will make . . . [their] assessment proportional to other assessments, on a basis which reaches results as close as is practicable to those which would have followed application by the assessors of the proper statutory assessment principles.'"  Coomey v. Assessors of Sandwich, 367 Mass. at 836 (quoting Shoppers' World, Inc. v. Assessors of Framingham, 348 Mass. 366, 377-78 (1971)).  The burden of proof as to the existence of a "scheme of discriminatory, disproportionate assessment" is on the taxpayers.  First National Stores, Inc. v. Assessors of Somerville, 358 Mass. 554, 559 (1971); see Schlaiker v. Assessors of Great Barrington, 365 Mass. at 245.  If taxpayers successfully demonstrate improper assessment of such a number of properties to establish an inference that such a scheme exists, the burden of going forward to disprove such a scheme shifts to the assessors.  Shoppers' World, Inc. v. Assessors of Framingham, 348 Mass. at 377.  "The ultimate burden of persuasion, of course, will remain upon the taxpayer[s]."  First National Stores, Inc. v. Assessors of Somerville, 358 Mass. at 562.
In the present appeals, the appellants failed to present virtually any evidence tending to show that the assessors engaged in an "intentional widespread scheme of discrimination."  Stilson v. Assessors of Gloucester, 385 Mass. 724, 727-28 (1982).  Accordingly, the Board found and ruled that no such inference could be drawn, and, therefore, it struck Ms. Flynn's estimate of value based on what she termed "equitable assessment" or disproportionate assessment.  The Board found and ruled that there was no deliberate scheme of disproportionate assessment.  Where assessments, even if wrong, are "consistent with honest mistake or oversight on the part of assessors" as opposed to a "deliberate scheme of disproportionate assessment," no relief for disproportionate assessment is appropriate.  Brown v. Assessors of Brookline, 18 App. Tax Bd. Rep. 83, 92 (1996), aff'd 43 Mass. App. Ct. 327 (1997) (quoting Stilson, 385 Mass. at 728).  The Board found and ruled that the assessors' failures to recognize the incomplete nature of the improvements and the need for structural and safety work in its assessment were honest mistakes or oversight and were not indicative of any bias.  
Finally, the appellants argued, without any legal analysis, that they were deprived of equal protection and due process because their property was assessed at a higher rate than property classified and assessed under G.L. c. 61B as "recreational land."  To receive favorable real estate tax treatment under c. 61B, the property owner must apply and be classified under the statute, and then use the property in certain ways consistent with c. 61B's mandate.  There is insufficient evidence that the subject property would qualify for classification under this statute and, even if it would, the appellants never applied for c. 61B classification and treatment.  Accordingly, the Board found and ruled that the appellants failed to prove that their property with its restrictions was comparable to property, which could qualify for classification under c. 61B, and, therefore, the appellants were not deprived of any right to equal protection.  "The tax . . . is not to be struck down unless it is shown to be plainly arbitrary and oppressively discriminatory against some particular class of taxpayers."  Old Colony Railroad Co. v. Assessors of Boston, 309 Mass. 439, 441 (1941).  The appellants did not make any such showing.  The Board further found and ruled that the existence of a legitimate permitting process to appeal the development limitations imposed by the conservation restrictions associated with their property also addressed the appellants' denial of equal protection argument and their denial of due process allegation.  The appellants have the same right to proceed under the permitting process upon the same conditions that govern the exercise of a similar right by everyone else in their class.  They are entitled to nothing more.  Id. at 439.              
On this basis, the Board decided this appeal for the appellants and reduced the assessment to account for the incomplete state of the improvements and the necessity for structural and safety repairs.

				
   THE APPELLATE TAX BOARD



					 By:__________________________
   Abigail A. Burns, Chairman




A true copy:





Attest: ____________________
   Clerk of the Board        

 The assessors' use of the term "wetland" indicates beach, submerged land, and the like.  It is not used to identify land under wetland and coastal protection statutes and ordinances.  
 The parties stipulated to the Department of Revenue's certifications for these three fiscal years.  
 The Board noted that even if it adopted, arguendo, Ms. Flynn's cost approach and her estimates of its components to check the value of the subject property, her methodology would nearly support the Board's ultimate finding of the subject property's value if the Board's adjustment for the cost of structural and safety repairs were substituted for her dollar-for-dollar adjustment for the cost to repair and replace all of the deficiencies.   

ATB 2003-2