Millford Development Limited v. Municipal Property Assessment Corporation, 2019 CanLII 67568

Assessment Review Board

Commission de révision de l’évaluation foncière

ISSUE DATE: July 18, 2019

FILE NO.: WR 160345

Assessed Person(s): Millford Development Limited

Appellant(s): Millford Development Limited

Respondent(s): Municipal Property Assessment Corporation (“MPAC”) Region 28

Respondent(s): City of North Bay

Property Location(s): 25 Packard Crescent

Municipality(ies): City of North Bay

Roll Number(s): 4844-050-078-07716-0000

Appeal Number(s): 3325465 and 3367514

Taxation Year(s): 2018 and 2019

Hearing Event No.: 713967

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 and Andrew Winkworth (advocate)

MPAC

Louise St. Jean, Justin Johnstone (advocate)

City of North Bay

No one appeared

DECISION OF THE BOARD DELIVERED BY DAN WEAGANT

INTRODUCTION

1The subject property, located at 25 Packard Crescent, has an assessment of $235,000 for the 2018 taxation year and $249,000 for the 2019 taxation year. Millford Development Limited (the “Appellant”) believed these assessments were too high and filed these appeals. The Appellant believes the assessment should be between $158,000 and $165,000.

2MPAC conducted an inspection of the property in May 2018. The inspection resulted in several downward adjustments in the assessed value due to some specific characteristics of the property that have an impact on its value. These adjustments resulted in a value of $224,000. MPAC submitted this as a recommended value for the Assessment Review Board (the “Board”) to consider for both years under appeal.

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

DECISION

4The Board finds the current value of the subject property is $224,000. The Board also finds that there is no evidence to support a reduction in this amount to make it equitable with the assessments of similar lands in the vicinity.

5Accordingly, the assessment of 25 Packard Crescent is reduced as follows:

• For the 2018 taxation year, from $235,000 to $224,000;

• For the 2019 taxation year, from $249,000 to $224,000;

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 applied the Direct Comparison Approach to value and 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 between 0.015 and 0.816 kilometres from the subject property. They are all single-family dwellings with two storeys or a side split design. They sold between May 2016 and July 2017 for prices ranging from $225,000 to $289,000.

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. The Assessor representing MPAC, Louise 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.

12The lowest sale price among the six comparable properties (23 Packard Crescent) was $225,000. That sale took place on June 30, 2016 or six months after the January 1, 2016 valuation day applicable to the two years under appeal.

13Ms. St. Jean testified that she considered 23 Packard Crescent (“23 Packard”) to be the best comparable among the six sales she selected. She explained that 23 Packard was built one year earlier than the the subject property and has the same size lot and the same number of bedrooms. The subject property and 23 Packard both have a split-level design and have similar basements and garages according to Ms. St. Jean.

14The net impact of these differences according to MPAC’s valuation report is $1,000; meaning that by direct comparison between the best comparable property as determined by MPAC at 23 Packard and the subject property, the subject property would have a value of $224,000.

15In its comparison between the subject property and 23 Packard, MPAC identified the following value adjustments:

• subject property effective year built is four years older - $4,000;

• subject property is a back split vs. a side split - $5,000

• subject property has one more bathroom + $3,000;

• subject property has electric baseboard heat vs. forced air heat at 23 Packard - $7,000;

• subject property has 231 square feet more living area + $13,000;

• subject property basement has 122 square feet less finished area - $2,000; and

• subject property has a slightly larger attached garage +$1,000.

16Ms. 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. With these differences accounted for, Ms. St. Jean believed the current value of the subject property, based on the best comparable property in evidence should be $1,000 less than 23 Packard, or $224,000.

Appellant’s Case

17The Appellant took two approaches to determining the current value of the subject property. First, 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 the basis of different values of specific characteristics.

18In his comparison, Mr. Guillemette submitted that all six comparable properties in evidence were superior in value when compared to the subject property. He added that the most comparable was the property with the lowest time adjusted sale (23 Packard). He distinguished the subject property from 23 Packard by their differences in condition.

19He summarized the elements of the subject property that would need upgrades as follows:

• new windows and doors;

• new siding and roof;

• new forced air furnace heating system;

• new flooring, trim and painting throughout; and

• updates to the kitchen, bathroom and landscaping.

20Mr. 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 23 Packard Road at $50,000 to $70,000. Mr. Guillemette selected the amount of $60,000 within this range and reduced the $225,000 sale price of 23 Packard accordingly to arrive at a comparative value of the subject property of $165,000.

21Mr. 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.

22The 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.

23He presented the calculation as follows:

• Monthly rent: $1,250 x 12 months = $15,000 annual rental income

• $15,000 x GRM of 10.54 = $158,100 or $158,000 rounded.

24The 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.

25By applying his findings of the relative comparison approach and the gross rent approach, Mr. Guillemette submitted that a reasonable current value of the subject property was $162,000 (rounded).

Board’S Analysis

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

26The 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.

27Justin Johnstone submitted that, for the Board to consider the income approach to value in this case, certain evidence that was not presented should have been provided:

• 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.

28The Appellant defended the GRM approach by citing passages from a published text on assessment and appraisal theory and practice. There was a correlation between the GRM and the gross income multiplier in this description and Mike Guillemette used the two terms interchangeably.

29Mr. Johnstone cited Cardinal Plaza Ltd. v. Ontario Regional Assessment Commissioner, Region No. 19 1984 CanLII 1841 (ON CA), 1984 CarswellOnt 1216, [1984] O.J. No. 3425, 15 D.L.R. (4th) 156, 17 O.M.B.R. 69, 29 A.C.W.S. (2d) 41, 49 O.R. (2d) 161, 7 O.A.C. 30 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.”

30The 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?

31The 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.

32In 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.

33MPAC looked at each sale in evidence and adjusted them to make a comparison to the subject. In doing so, it focused on Comparable Property No. 3, 23 Packard Crescent. This comparable property had the lowest sale value of the six comparable properties at $225,000. MPAC deemed Property No. 3 to be slightly superior 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 $224,000, which it submitted was the best reflection of its current value.

34The Appellant also compared the subject property and chose 23 Packard as the best comparable property in the sample of six. Instead of making specific value adjustments to 23 Packard, the Appellant applied what Mr. Guillemette referred to as a relative comparison between it 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.

35In 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 (23 Packard). The Appellant’s view was that it would take $60,000 to make the two properties being compared equivalent in value. By this approach, Mr. Guillemette reduced the sale value of 23 Packard ($225,000) in evidence by $60,000 to arrive at a current value of the subject property of $165,000 (rounded).

36The Appellant’s relative comparison approach suffers from a lack of corroborating and quantifiable evidence. While Mr. Guillemette applied a $60,000 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.

37MPAC 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.

38MPAC 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.

39The Board finds that the best evidence of current value of the subject property is that of MPAC, for the following reasons:

• It provided quantifiable, corroborating evidence;

• MPAC’s comparisons were based on sale values derived from market conditions during the time frame of six to 18 months after the applicable valuation day;

• The value adjustments applied by MPAC were based on sales data from 483 sales of residential properties that took place from January 2015 to December 2017;

40MPAC’s comparison was the only method to consider the differences in value for several points of comparison between the subject property and the comparable properties in evidence.

41The Board finds that the current value of the subject property is $224,000.

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?

42The Appellant did not make a specific submission on the question of equity of assessment.

43MPAC submitted an equity analysis that compared the time adjusted sale values 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 equitable 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 0.799 to 1.146, with a median of .990.

44According to MPAC, no adjustment to the current value determined is required because the median ASR falls within a range of 0.95 and 1.05. This range is considered by MPAC and the International Association of Assessing Officers (IAAO) to indicate that similar properties in the vicinity are being assessed at their current value, based on sales.

Board’s Analysis

45The 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.

46MPAC’s equity analysis indicated that, when the assessments of 30 similar properties (single family dwellings, not on water) in the vicinity (within 0.82 kilometres of the subject property) are compared with their time adjusted sale values, the result shows these properties are generally assessed at 99% of their current values. 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.

47In 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 - 0.986

• Standard Deviation - 0.087

• 95% Confidence Range - 0.031

• Low End of the Confidence Range - 0.955

• High End of the Confidence Range - 1.017

48Based on this sample, the Board can be 95% sure that the true average level of assessment of similar properties in the vicinity is between 95.5% and 101.7% 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

49The Board finds the current value of the subject property is $224,000. The Board also finds that there is no evidence to support a reduction in this amount to make it equitable with the assessments of similar lands in the vicinity.

50Accordingly, the assessment of 25 Packard Crescent is reduced, as follows:

• For the 2018 taxation year - from $235,000 to $224,000; and

• For the 2019 taxation year - from $249,000 to $224,000,

both in the Residential property class.