Assessment Review Board

Commission de révision de l’évaluation foncière

ISSUE DATE: June 14, 2019

FILE NO.: WR 157342

Assessed Person(s): Eric Man and Betty Ann Chung

Appellant(s): Eric Man and Betty Ann Chung

Respondent(s): Municipal Property Assessment Corporation, ("MPAC") Region 03

Respondent(s): City of Ottawa

Property Location(s): 193 James Street

Municipality(ies): City of Ottawa

Roll Number(s): 0614-063-101-12000-0000

Appeal Number(s): 3319386 and 3346433

Taxation Year(s): 2018 and 2019

Hearing Event No.: 707178

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

Heard: November 14, 2018 in the Ottawa, Ontario

APPEARANCES:

Parties	Representative
Eric Man and Betty Ann Chung	Self-represented
MPAC	Amanda Gordon
City of Ottawa	No one appeared

DECISION DELIVERED BY PIERRE R. LAVIGNE AND JOSEPH JEBREEN

1Eric Man (the "Appellant") is co-owner of a property known municipally as 193 James Street (the "subject property") in the City of Ottawa.

2The subject property is a two-and-one-half storey residence built in approximately 1900 with a quality of construction of 6.5. The residence has a total building area of 2,744 square feet. The basement has a total building area of 1,146 square feet with no finished space. The residence has three bedrooms, three baths, air conditioning, and forced air heating. The lot has an effective frontage of 29 feet and an effective depth of 109 feet.

3The Appellant has appealed his assessment for the 2018 taxation year pursuant to s. 40 of the Assessment Act, R.S.O. 1990, c. A.31 Act (the "Act"). He contends that the assessment is too high. He has also been deemed to have brought an appeal of the 2019 assessment because the 2018 appeal was not finally disposed of before March 31, 2019, pursuant to clause 40(26)(b) of the Act.

4MPAC assessed the subject property at $819,000. In the valuation report filed in evidence, MPAC's Property Valuation Analyst expressed the opinion that, using the direct comparison method, the current value of the subject property as of the legislated valuation day of January 1, 2016 is $761,000. The Appellant has filed his own evidence and submits that the January 1, 2016 current value of the subject property is $740,000.

5Pursuant to s. 40(11) of the Act, the City of Ottawa is a party to this proceeding. However, it did not advise the Board of its position and no one appeared at the hearing on behalf of the City.

6Section 44.(3)(b) of the Act directs the Board to reduce the current value of the subject property if similar lands in the vicinity have been assessed at a lower value ("equitable reduction"). The purpose of this provision is to fairly distribute the municipal tax burden according to the assessed values of similar properties in the vicinity.

7MPAC takes the position that an equitable reduction is not required. The Appellant has presented no evidence in support of an equity reduction.

8At the completion of the hearing, the Board reserved its decision. For the reasons that follow, the Board finds that the current value for the 2018 and 2019 taxation years is $745,000. Pursuant to s. 44(3)(b) of the Act, an equitable reduction of this value is not required.

9The Board therefore reduces the assessment from $819,000 to $745,000 for the 2018 and 2019 taxation years.

ISSUE

10The issue before the Board is the current value of the subject property as of January 1, 2016 for the 2018 and 2019 taxation years.

REASONS FOR DECISION

Relevant Legislation

11Section 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.

12Section 19.(1) of the Act states:

The assessment of land shall be based on its current value.

13Section 19.2.(1) of the Act states:

Valuation days – Subject to subsection (5), the day as of which land is valued for a taxation year is determined as follows:

4. For the period consisting of the four taxation years from 2017 to 2020, land is valued as of January 1, 2016.

14Section 40.(17) of the Act states:

For 2009 and subsequent taxation years, where value is a ground of appeal, the burden of proof as to the correctness of the current value of the land rests with the assessment corporation.

15Section 44.(3) of the Act states:

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.

Discussion, Analysis for Current Value

MPAC's Case

16Though the subject property was assessed at $819,000 for the 2018 taxation year, the opinion of MPAC's valuation analyst was that the January 1, 2016 current value was $761,000.

17This opinion was derived by purportedly using the direct comparison approach to valuation. As detailed further below, we do not find that MPAC in fact used the direct comparison approach.

18Sales of comparable properties were identified and adjusted by means of time adjustment factors. The time adjustment factors were derived from a Sales Ratio Trend Analysis. This consisted of plotting the assessment to sale ratios by sale month of 59 sales of vacant and/or improved land from the subject property's neighbourhood and adjacent areas from April 1, 2014 to November 18, 2016, a period of 31 months. The overall change in the market was 22.69 percent. Time adjustment factors were derived for each month in an attempt to adjust sale prices not occurring on the legislated valuation day of January 1, 2016.

19The use of the time adjustments in MPAC's valuation report is problematic because of the time period used and the neighbourhoods used.

20In Sundararaj v. Municipal Property Assessment Corporation, Region 03, 2018 CanLII 104619 (ON ARB) ("Sundararaj"), Vice-Chair McAnsh stated at paragraph 2 that "time adjustment of sale prices should be avoided if possible, especially where there is evidence from sale prices of similar properties that sold close to the valuation day."

21The MPAC valuation report compares the subject property to 10 sales occurring between May 21, 2014 and November 15, 2016. The Sales Ratio Trend Analysis goes back to April 2014 to include the earliest sale.

22The Appellant's analysis of the 59 sales included in the Sales Ratio Trend Analysis shows that only 23 of the 59 sales were in the Centretown neighbourhood where the subject property is located. Thirty one (31) sales were in the Glebe neighbourhood, a neighbourhood MPAC's witness admitted was superior. The Appellant also presented data from the Ottawa Real Estate Board, MLS Home Price Index which indicated that change in prices from 2011 to 2016 for the Glebe neighbourhood was 14.6%, but only 9.5% for the Centretown neighbourhood.

23The disparity in neighbourhood data sources and the time period for this Sales Ratio Trend Analysis make it difficult to rely on time adjusted prices for the purposes of ascertaining the January 1, 2016 value. These difficulties reinforce the preference to avoid time adjusted sale prices as stated in Sundararaj when there are sufficient sales within the shoulder years of the legislated valuation day. For this reason the Board does not rely on the time adjustment study presented by MPAC and only considers actual sale prices of sales occurring in 2015 and 2016.

24MPAC's valuation report identified ten sale transactions which could be used to derive an opinion of the subject property's value. We exclude the three sales (Sales 2, 5 and 7) in 2014 because they are outside of the shoulder years. The remaining seven sales are summarized in the following table which compares some of their elements with the subject property. We have maintained the same sale numbers that MPAC assigned to the properties:

Sale #	Property	Effective Frontage(ft.)	Sq. ft.	Quality	Baths	Evaluation	Sale Date	Price
	193 James	29	2,744	6.5	3	N/A	N/A	N/A
1	198 James	42	2,267	7.0	1.5	Inferior	2015-08-17	$720,000
3	200 James	42	2,328	7.0	1.5	Similar	2015-10-30	$751,000
4	29 James	31	3,076	6.5	2.5	Similar	2016-11-15	$733,000
6	490 MacLaren	43	2,383	6.0	2.5	Similar	2015-05-21	$686,000
8	470 MacLaren	28	2,438	6.5	1.5	Inferior	2015-03-09	$670,000
9	512 MacLaren	25	2,484	6.5	2.5	Similar	2016-03-24	$758,000
10	486 MacLaren	28	2,216	6.0	2.5	Inferior	2016-07-08	$720,000

25The table also includes MPAC's opinion as to whether these properties should be considered inferior, similar or superior to the subject property. This analysis should then be used to identify a reasonable range of value for the subject property based on the assumption that the subject property must be worth more than the highest price of inferior properties and less than the lowest price of superior properties.

26However, when the Board asked MPAC's witness how she arrived at the proposed current value of $761,000, she testified that she first divided the assessed values by the time adjusted sales prices for each of the ten comparable properties to obtain time adjusted sales ratios. She then calculated the median time adjusted sale ratio to be 1.08, and concluded that the comparable properties were over assessed by 8%. She stated that, because the desired time adjusted sales ratio is 1, she divided 1 by 1.08 to obtain 93% and therefore applied a 7% downward adjustment to the returned assessed value of the subject property of $819,000 to arrive at its proposed current value of $761,000.

27We cannot accept this method of arriving at current value. It is not a recognized valuation methodology for the determination of value of individual properties and the proposed methodology is not reliable.

28In its valuation report, MPAC states that "the valuation process involves application of any or all of the three approaches to value: cost, income and direct comparison." MPAC further submitted that it relied on the direct comparison approach to obtain its proposed current value of $761,000.

29In the direct comparison approach, a search for comparable properties that sold at or near the valuation day is conducted. Once it is established that the chosen sales are comparable to the subject property, they must be analysed to determine if upward or downward adjustments to their sale prices are required due to inferior or superior features respectively as compared to the subject property. The adjusted sale prices of comparable properties are then used to arrive at a current value for the subject property. This is not what MPAC has done.

30In this case, MPAC qualitatively analysed the comparable properties and determined that they were either inferior or similar to the subject property. The Board has accepted this practice. However, instead of using the comparable properties' median assessment to sales ratio as a basis to adjust the assessed value of the subject property. There were no upward or downward adjustments made. MPAC's analysis as to whether the comparable properties were either inferior or similar, as indicated in the table above, was not used whatsoever in its proposed methodology. MPAC did not apply the direct comparison approach.

31MPAC'S conclusion is based on an assumption that MPAC's assessment of $819,000 is a valid starting point. MPAC regularly asserts before the Board that its model is not on trial and the Board accepts that proposition. It cannot then expect to use its model-derived assessment of $819,000 as a valid starting point to determine current value. There is no evidence before the Board as to how the $819,000 assessment is calculated and no way to determine the reliability of that assessment. Indeed, MPAC admits that its assessment is not indicative of current value by submitting that it should be adjusted downward by 7%. We cannot rely on assessments to determine current value.

32Further, the valuation analyst's conclusion that the comparable sales were over-assessed by a median amount of 8% is not evidence that the subject property was also over-assessed by this amount when determining current value.

33For these reasons, MPAC has not used a valid approach to determining current value and has thus failed to meet its burden of proving the correctness of the current value of the subject property.

Appellant's Case

34The Appellant bought the subject property on August 28, 2014 for $669,000. There is no dispute by MPAC that this was a valid open market sale.

35The Appellant states that he subsequently completed renovations and repairs both to improve the property and remedy defects revealed on his home inspection. He filed in evidence his agreement of Purchase and Sale dated May 22, 2014 for a purchase price of $682,000 which was later amended to $669,000 on account of the cost to remedy deficiencies revealed by the inspection.

36The Appellant states that the total cost of the renovations and repairs, including sales tax, was $76,300.51. This total is supported by the statements of account in evidence. The work was completed by the late spring of 2015.

37The Appellant also submitted an appraisal report dated March 29, 2018, prepared by Andrew M. Wieland, CRA, (Certified Residential Appraiser) of Wieland and Associates. The report was prepared for the purpose of ascertaining the current value as of the legislated valuation day of January 1, 2016. The opinion of Mr. Wieland is that the January 1, 2016 estimated market value of the property is $740,000.

38Mr. Wieland used four comparable sales and made adjustments for differences in the properties.

39His first comparable sale was 486 MacLaren, also identified by MPAC as its Sale #10. This property sold on April 14, 2016 for $720,000. This property has a livable floor area of 2,216 sq. ft., compared to the subject property's 2,762 sq. ft. In order to have a fair comparison Mr. Wieland added $41,000 of value to this sale (546 sq. ft. @ $75 per sq. ft. = $40,950, rounded to $41,000). He then deducted $3,000 to account for the fact that the subject property did not have a fireplace. A net adjustment addition of $38,000 produced an adjusted sale price of $758,000.

40His second comparable sale was 200 James, also identified by MPAC as its Sale #3. This property sold on October 30, 2015 for $751,000. Mr. Wieland adjusted this value upward by $33,000 for the smaller square footage and by $15,000 for the one-and-one-half bathroom difference. He adjusted the value downward $15,000 for the extra lot area, $15,000 for a single detached garage and $25,000 on account of its superior quality and upgrades. This produced a net downward adjustment of $7,000, for an adjusted sale price of $744,000.

41The third comparable sale is 198 James Street, also identified by MPAC as its Sale #1. This property sold on May 19, 2015 for $720,000. Mr. Weiland adjusted this value upward by $36,000 for the smaller square footage and by $15,000 for the one-and-one-half bathroom difference. He adjusted the value downward $15,000 for the extra lot area, $15,000 for a single detached garage and $25,000 on account of its superior quality and upgrades. This produced a net downward adjustment of $4,000, for an adjusted sale price of $716,000.

42His fourth comparable sale is 470 MacLaren, also identified by MPAC as its Sale #8. This property sold on January 29, 2015 for $670,000. Mr. Wieland adjusted the value upward by $24,000 for the smaller square footage and by $15,000 for the 1.5 bathroom difference. He further adjusted the sale price upwards by $35,000 to account for the sale having occurred almost a year before the legislative valuation day. He also decreased the value by $3,000 because it did not have a fireplace. This produced a net upward adjustment of $71,000, for an adjusted sale price of $741,000.

43Mr. Wieland was not called as a witness at the hearing and so was not available to explain how the time adjustment was arrived at. In light of the above discussion on time adjustments, and the absence of an explanation in his report, the Board would place no weight on this last adjusted value.

44Mr. Wieland opined that the "Adjusted sales data indicates a value range of $716,000 to $744,000 as at January 1, 2016. The value is felt to be applicable at the middle end of the adjusted value range." His final opinion of value was $740,000. This is the value that was advanced by the Appellant in argument as the correct value.

45We have concerns about relying on the final opinion of value in the appraisal report. The appraisal report states that the current value of the subject property is between $716,000 and $744,000, yet the adjusted sale price of comparable #1 is $758,000. The appraisal report also does not include support or provide justifications on particular dollar value adjustments, particularly the larger $25,000 adjustment for undefined superior quality and upgrades. We are not making a negative finding of credibility of the author of the report. We are finding that we cannot rely on the adjustments and final opinion in the appraisal report because the support and justifications are missing and the author was not present at the hearing to explain his opinions. We nevertheless consider the properties presented in the report as comparable properties in determining current value.

Board's Finding on Current Value

46MPAC returned an assessment of $819,000 for the 2018 taxation year. In support of that assessment it filed a valuation report with an opinion of current value at $761,000. As we have found above, we cannot rely on MPAC's method of calculating current value. Also as discussed above, we do not rely on the opinion of value in the Appellant's appraisal report.

47We also do not rely on Sales 2, 5 or 7 because the sale dates are outside the shoulder years. Although Sales 1, 3 and 6 are comparable, there are many features which are different than the subject property that make them harder to analyze based on the evidence presented. All of Sales 1, 3 and 6 have garages whereas the subject property does not. Sales 1, 3 and 6 have different frontages and lot areas, qualities of construction, renovations, and total building areas. In light of the fact that there are more comparable properties as detailed below, we do not need to consider Sales 1, 3 and 6 in our analysis.

48Both MPAC and the Appellant's appraisal report agree that the property at 486 MacLaren (Sale #10) is inferior to the subject property. We agree that Sale #10 is inferior to the subject property. Although Sale #10 may be slightly superior because of the fireplace, the home on Sale #10 is over 500 square feet smaller than the subject property and the renovations on the subject property are newer and more extensive. Sale #10 sold for $720,000 in July 2016, and we therefore find that the current value of the subject property is above $720,000.

49MPAC also submitted that Sale #4 at 29 James and Sale #9 at 512 MacLaren are similar to the subject property. We agree with this conclusion. Both properties do not have a garage and have similar frontages and lot areas. They are both within about 250 square feet of the total building area of the home on the subject property. Both have a similar year built to the subject property and the same quality of construction. Sale #4 sold for $733,000 in November 2016 and Sale #9 sold for $758,000 in March 2016. We find this to be the range within which the current value of the subject property lies. We see no reason to favour either the lower or the higher end of the range and so we find that the current value as indicated by the direct comparison approach is approximately $745,500, at the middle of the range.

50The Board also has another method of determining the current value of the subject property. The best evidence of the current value of the subject property is a sale of the subject property close to the valuation day. The subject property sold for $669,000 in August 2014, approximately 17 months from January 1, 2016. Although this sale is not within one year of the valuation day, we nevertheless consider it a good indication of value because it is the sale of the actual property at issue. To this total, we add the renovations that the Appellant completed by the spring of 2015 in the amount of $76,000. We therefore find that the current value of the subject property based on the sale and renovations to the subject property is $745,000.

51Based on the evidence before us, we find that the correct current value of the subject property as of January 1, 2016 for the 2018 taxation year is $745,000.

BOARD'S FINDING ON EQUITY

52As the issue of the equity of assessment compared to properties in the vicinity was not raised by the Appellant as a ground of appeal, nor was evidence of inequity of assessment in the vicinity presented, there is no equity adjustment.

DECISION

53The correct current value of the subject property as of the January 1, 2016 valuation day is $745,000. The Board will therefore reduce the assessment from $819,000 to $745,000 for the 2018 and 2019 taxation years.