Tax Court: Town’s Assessment of Beach Property is a “Lot” of Baloney!

A recent decision by New Jersey Tax Court Presiding Judge Patrick DeAlmeida, highlighted the lack of credibility of a creative valuation approach by the Borough of Bay Head.  The appeal concerned a large single family residence with ocean views, for which scant comparable sales evidence existed due to the unique nature of the 5,000 square foot home.  Appraisers for both sides relied upon two sales located in Bay Head, both of which were smaller homes, while the taxpayer’s appraiser also relied upon two sales from the neighboring municipality of Mantoloking.  The original assessment was $3,800,000, and was reduced by the Ocean County Tax Board to $3,500,000 but both parties appealed.  The taxpayer sought a reduction to $2,700,000 and the Borough’s tax assessor countered with a suggested true value of $4,000,000 for the property.

While the Tax Court concluded that the taxpayer had overcome the presumption of correctness and analyzed the various adjustments made by both appraisers to the not-so-comparable sales, one aspect of the Borough’s assessment and opinion of value stood out loud and clear.  The property was situated on an “oversized” lot – 100′ X 130′, which is technically large enough to house two separate dwellings and which had been designated with two tax lot numbers.  The taxpayer’s appraiser acknowledged that the property therefore had excess land and accounted for this by adjusting his comparable sales upwards approximately $160,000.  In contrast, the tax assessor made a whopping adjustment of $1,600,000 for the land, contending that this was the fair market value of a separate building lot in the Borough, which should be included in the property’s value to recognize its subdivision potential.

The problem with the assessor’s approach, according to the Tax Court, was that the taxpayer’s home was too large to fit on only one of the numbered tax lots, meaning that the highest and best use of the taxpayer’s property could not support a subdivision without demolishing the home.  Since the home was well-maintained, demolition was not an option, either in real life or in a hypothetical valuation.  As a result, the court concluded that the taxpayer’s valuation approach to the excess land was more credible, and it reduced the assessment to $3,000,000.

A copy of the Tax Court’s opinion in Brown v. Bay Head is available here.