Assessment Review Board

Commission de révision de l’évaluation foncière

ISSUE DATE:

June 14, 2019

FILE NO.:

WR 160344

Assessed Person(s):

Vincenza Orsi, Estate of Frank Orsi

Appellant(s):

Millford Development Limited

Respondent(s):

Municipal Property Assessment Corporation (“MPAC”)

Region 28

Respondent(s):

City of North Bay

Property Location(s):

889 Ski Club Road

Municipality(ies):

City of North Bay

Roll Number(s):

4844-050-078-07712-0000

Appeal Number(s):

3325461 and 3367538

Taxation Year(s):

2018 and 2019

Hearing Event No.:

713966

Legislative Authority:

Section 40 of the Assessment Act, R.S.O. 1990, c. A.31, as amended

Heard:

May 7, 2019 in North Bay, Ontario

APPEARANCES:

Parties

Representative

Millford Development Limited

Mike Guillemette

Andrew Winkworth

MPAC

Louise St-Jean

Justin Johnstone

City of North Bay

No one appeared

DECISION OF THE BOARD DELIVERED BY DAN WEAGANT

INTRODUCTION

1The subject property, located at 889 Ski Club Road, has an assessment of $316,000 for the 2018 taxation year and $324,000 for the 2019 taxation year. Millford Development Limited (the “Appellant”) believed this assessment was too high and filed an appeal. The Appellant was represented at the hearing by Mr. Guillemette. The Appellant believes the assessment should be between $198,000 and $209,000.

2MPAC conducted an inspection of the subject property in May 2018. The inspection resulted in a number of adjustments to the characteristics of the subject property that have an impact on its value. These adjustments resulted in a value of $305,000. MPAC submitted this as a recommended value for the Assessment Review Board (the “Board”) to consider.

3The Board must decide three things in these appeals. Firstly, the Board must decide the current value of the subject property and the best method of determining that value. Once that decision is made, the Board must then determine if the current value found needs to be reduced for the purpose of equitable assessment.

DECISION

4The Board finds the current value of the subject property is $305,000. The Board also finds that there is no evidence to support a reduction in this amount in order to make it equitable with the assessments of similar lands in the vicinity.

5Accordingly, the assessment of 889 Ski Club Road is reduced, as follows:

• For the 2018 taxation year - from $316,000 to $305,000; and

• For the 2019 taxation year - from $324,000 to $305,000;

both in the Residential property class.

LEGISLATION

6In making its determination of these appeals, the Board must consider the relevant sections of the Assessment Act, R.S.O. 1990, c. A.31, (the “Act”).

7Section 1 of the Act states:

“current value” means, in relation to land, the amount of money the fee simple, if unencumbered, would realize if sold at arm’s length by a willing seller to a willing buyer.

8Section 19.(1) of the Act states:

19.(1) Assessment based on current value. – The assessment of land shall be based on its current value.

9Section 44.(3) of the Act states:

44.(3) Same, 2009 and subsequent years. – For 2009 and subsequent taxation years, in determining the value at which any land shall be assessed, the Board shall,

(a) determine the current value of the land; and

(b) have reference to the value at which similar lands in the vicinity are assessed and adjust the assessment of the land to make it equitable with that of similar lands in the vicinity if such an adjustment would result in a reduction of the assessment of the land.

What is the Current Value of the Subject Property?

MPAC’s Case

10MPAC submitted a valuation report that considered the sales of six properties in the City of North Bay that it deemed to be comparable with the subject property. These six properties are located from 0.266 to 0.954 kilometres from the subject property. They are all single-family dwellings with either a side split or no split configuration. They sold between January 2016 and July 2017 for prices ranging from $262,500 to $319,900.

11To determine the current value of the subject property from these six comparable sales, MPAC adjusted their respective sales prices to account for their differences when compared to the subject property. Ms. St-Jean testified the value of these adjustments came from data derived from 496 single-family dwelling sales that took place from January 2015 through December 2017.

12MPAC considered its Comparable Sale No. 3 at 1259 Ski Club Road to be the most comparable of the six sales in its evidence, for the following reasons:

• It is on the same road as the subject property, with the same inherent locational characteristics;

• It has not undergone a renovation since it was built in 1988;

• It has a basement walkout and electric baseboard heat which are the same at the subject property; and

• It has a similarly sized attached garage.

13In its comparison between the subject property and 1259 Ski Club Road, MPAC identified the following differences with their associated values from its 2015 to 2017 sales data:

• subject property effective year built is eight years older - $7,000;

• subject property has two more bathrooms + $9,000;

• subject property has two fewer fireplaces – $5,000;

• subject property has air conditioning + $8,000;

• subject property has 411 square feet more living area + $28,000; and

• subject property has a basement 549 square feet larger, with 519 square feet more finished area + $12,000.

141259 Ski Club Road had a time adjusted sale price (TAS) of $262,556. MPAC submitted that the market based value of the differences between the two properties result in an additional value of $45,000. When added to the TAS value of 1259 Ski Club Road the result is $307,566. MPAC rounded this result down slightly to $305,000 as the recommended current value of the subject property.

Appellant’s Case

15The Appellant took two approaches to determining the current value of the subject property. A relative comparison approach was taken whereby the subject property was compared to the sale values of the six comparable properties submitted by MPAC. Mr. Guillemette described this approach as akin to the Direct Comparison Approach, but where characteristics of the properties being compared are considered as a whole and not necessarily on a differing valuation per specific characteristic.

16In his comparison, Mr. Guillemette agreed with MPAC to the extent that the best comparable property to the subject property was Property No. 3 located at 1259 Ski Club Road. He distinguished the subject property from Property No. 3 by the differences in condition and summarized the elements of the subject property that would need upgrades as follows:

• new windows and doors;

• new forced air furnace heating system;

• new flooring, trim and painting throughout; and

• updates to the kitchen, bathroom and landscaping.

17Mr. Guillemette testified that he spoke with the Appellant who is an experienced contractor and builder in the City of North Bay area and extracted an estimated cost of the elements needed to bring the subject property up to the standard of 1259 Ski Club Road at $50,000 to $70,000. Mr. Guillemette selected the amount of $65,000 within this range and reduced the sale price of 1259 Ski Club Road, of $262,500 accordingly to arrive at a comparative value of the subject property of $198,000 (rounded).

18Mr. Guillemette did not enter any documentary evidence as to the value of the elements he submitted needed upgrading but relied on the conversation he had with the owner as to the value of those works.

19The Appellant’s second approach to value is what Mr. Guillemette referred to as the gross rent multiplier (“GRM”) method of determining value as part of the income approach. Mr. Guillemette applied the monthly rent charged by the Appellant to the tenant as of January 1, 2016, multiplied that rent by 12 for an annual revenue, then applied a GRM to that rental income to derive what he believed to be a market value based on the subject property’s rental income.

20He presented the calculation as follows:

• Monthly rent - $1,650 x 12 months = $19,800 annual rental income

• $19,800 x GRM of 10.54 = $208,692 or $209,000 rounded.

21The GRM was derived from 10 sales of single-family dwellings that occurred from 2007 through 2018, including annual rental income of between $15,000 and $22,000.

22By applying his findings of the relative comparison approach and the gross rent approach, Mr. Guillemette preferred the average of these two values and submitted that a reasonable current value of the subject property was $209,000 (rounded).

23In summary, the Appellant used the results from both of the valuation methods and submitted that the current value of the subject property should be $200,000.

Board’s Analysis

What is the best method of determining the current value of the subject property?

24The Parties advanced three separate methods of determining current value. MPAC applied the direct comparison approach. The Appellant applied the relative comparison approach and the income approach to value.

25Mr. Johnstone submitted that for the Board to consider the income approach to value in this case, certain evidence that was not presented would have been provided. These include:

• rent rolls for the subject property and other properties in the subject ‘rent pool’;

• confirmation of a market or fair market rent;

• an accounting of operating and capital expenses for the subject property and those properties in rental pool; and

• expanded sale data for the properties used in the Appellant’s table of sales used to determine the GRM applied.

26The Appellant defended the GRM approach by citing passages from a recognized volume on assessment and appraisal theory and practice. There was a correlation between the GRM and the gross income multiplier in this description and Mr. Guillemette used the two terms interchangeably.

27Mr. Johnstone cited Cardinal Plaza Ltd. et al. and Regional Assessment Commissioner, Region No. 19 et al., 1984 CanLII 1841 (ON CA), 49 O.R. (2d) 161 (“Cardinal”) whereby the Ontario Court of Appeal found that “…an equitable assessment of multi-residential properties based on the income approach must necessarily use economic rents rather than actual rents.”; adding: “The Court rejected the argument that the calculation should be based upon the actual rents then payable under existing leases.”

28The decision in Cardinal is clear. Without “market” or “fair market” rents in evidence, the Board disregards the Appellant’s GRM approach to value and finds that the direct comparison approach to value is the best approach in the present case.

What is the Current Value of the Subject Property?

29The best evidence of current value is a sale of the subject property that occurred on or near the applicable valuation day. In the absence of such a sale, the next best approach to determining current value is the comparison of the subject property to other properties that have sold in proximity to the valuation day. This does not preclude the Board’s consideration of other methods of determining current value, but alternative methods must be seen to be superior to either a sale of the subject or its comparison to other properties.

30In this case, the Board has six sales of other properties in evidence to consider. Both Parties chose the same six comparable properties. Their direct comparison approaches differed in the way these six sales were compared to the subject property.

31MPAC looked at each sale in evidence and by making adjustments to them in order to make a comparison to the subject. In doing so, it focused on Comparable Property No. 3, at 1259 Ski Club Road. This comparable property had the lowest sale value of the six comparable properties at $262,500. MPAC deemed Property No. 3 to be inferior to the subject property prior to making value adjustments between the two. MPAC’s calculation of this comparison resulted in a current value for the subject property of $305,000, which it submitted was the best reflection of its current value.

32The Appellant also chose Property No. 3 as the best comparable property in the sample of six. Instead of making specific value adjustments to Property No. 3, the Appellant applied what Mr. Guillemette referred to as a relative comparison between Property No. 3 and the subject property. This method takes as many specific features as are in evidence between the subject property and a selected comparable property and makes a judgement as to the difference in value as a result. Mr. Guillemette testified this comparison relies on the experience of the appraiser to make the adjustment and to arrive at a value of the subject property.

33In doing so, the Appellant’s case relied on a conversation between Mr. Guillemette and the owner where an estimate of a cost to cure on the subject property was applied. This cost to cure was described as the amount of money required to bring the subject property up to the value of the best comparable property (Property No. 3.) The Appellant’s view was that it would take $65,000 to make the two properties being compared equivalent in value. By this approach, Mr. Guillemette reduced the sale value of Comparable Property No. 3 ($262,500) in evidence by $65,000 to arrive at a current value of the subject property of $198,000 (rounded).

34The Appellant’s relative comparison approach suffers from a lack of factual information. While Mr. Guillemette applied a $65,000 adjustment to account for deficiencies in condition, he did not provide any documentary evidence to support that amount. Nor did the Appellant call any witnesses to attest to that amount.

35MPAC submitted that its approach was the best evidence of the current value of the subject property because it was derived from sales of comparable properties. The Appellant submitted that a comparison of sales of other properties for this purpose must also account for their differences, and in this case, the differences applied by MPAC were not sufficient to account for the inferior condition of the subject property.

36MPAC countered that the condition referred to by the Appellant is addressed by the differences in value reflected by the effective age of the properties in evidence and the subject property, and that the deficiencies in the subject property highlighted by the Appellant were simply the normal wear and tear on a house that has been rented since its construction in the 1980s without any upgrades since.

37The Board finds that the best evidence of current value of the subject property is that of MPAC, for the following reasons:

• MPAC’s comparisons were based on sale values derived from market conditions during the time frame of 12 months before and 24 months after the applicable valuation day;

• The value adjustments applied by MPAC were based on sales data from the same time period;

• MPAC’s comparison was the only method to consider the subject property’s living area size which was the largest amount it and the six properties in both parties’ comparison analysis.

38The Board finds that the current value of the subject property is $305,000.

Is a Reduction in the Current Value necessary to achieve Equitable Assessment when Reference is made to the Assessments of Similar Properties in the vicinity?

39The Appellant did not make a specific submission on the question of equity of assessment.

40MPAC submitted an equity analysis that compared the time adjusted sale value of 30 single-family dwellings in the vicinity of the subject property with their corresponding 2016 current value assessments. Comparisons of such assessments and time adjusted sale values are a common means of determining if similar properties in the vicinity are equitably assessed. The comparison of these assessments to time adjusted sale values is called the Assessment to Sale Ratio (“ASR”). The range of ASRs in MPAC’s sample was 0.877 to 1.121, with a median of 0.989.

41According to MPAC, no adjustment to the current value determined is required because the median ASR falls above 1.00 which indicates that similar properties in the vicinity are being assessed above their current value, based on sales.

Board’s Analysis

42The concept of reducing the current value determined to make the subject property’s assessment equitable with that of similar properties in the vicinity requires the Board to change a correct assessment finding to one that is incorrect to make it fair and equitable. Adjustments for this purpose cannot therefore be made without compelling evidence to do so.

43MPAC’s equity analysis indicates that, when the assessments of 30 similar properties in the vicinity of the subject property are compared with their time adjusted sale values, the result shows that properties are generally assessed above their current value. MPAC relies on a median ASR to decide if the current value of a property should be reduced to arrive at an assessment that is equitable.

44In making its determination of any equity reduction, the Board must be convinced, by the best evidence available that the reduction is warranted. The Board finds that the mean ASR using all properties in evidence is the best evidence of whether or not a reduction in current value is required for the purposes of equitable assessment. Using MPAC’s sample of 30 properties the results are:

• Mean ASR - 0.987

• Standard Deviation - 0.066

• 95% Confidence Range - 0.024

• Low End of the Confidence Range - 0.964

• High End of the Confidence Range - 1.011

45Based on this sample, the Board can be 95% sure that the true average level of assessment of similar properties in the vicinity is between 96.4% and 101.1% of their current values. That is strong evidence that similar property in the vicinity is, on average, slightly below to slightly above its current value. This is not compelling evidence that a reduction in the current value determined for the subject property is necessary for an equitable assessment.

CONCLUSION

46The Board finds the current value of the subject property is $305,000. The Board also finds that there is no evidence to support a reduction in this amount in order to make it equitable with the assessments of similar lands in the vicinity.

47Accordingly, the assessment of 889 Ski Club Road is reduced, as follows:

• For the 2018 taxation year – from $316,000 to $305,000; and

• For the 2019 taxation year - from $324,000 to $305,000,

both in the Residential property class.