In any trial to determine the value of real property, whether it be an eminent domain taking, or an application to reduce assessed taxes, a recent sale of the parcel will be extremely relevant. If a sale was an open market transaction with a buyer under no compulsion to buy and a seller under no compulsion to sell, the transaction, unless explained away, will be considered a fair market sale at the time of the sale.
Normally, appraisers will utilize the market data or comparable sales approach for valuation. In this approach, the subject is valued by comparison with other properties. In order to be considered comparable, the sales are to be sufficiently: (i) near in time to the valuation date; and (ii) alike with respect to character, size, situation, usability, and zoning. This is to make clear that sales are comparable in value and that the cash equivalent price realized for the properties sold may fairly be considered as shedding light on the property being valued.
The Ohio Supreme Court made clear that a recent sale price is not an absolute determinant of a property’s valuation. Instead, it held that where the parcel has been the subject of a recent arm’s-length sale, the sales price is the best evidence of the true value of the property, but this presumption may be rebutted by evidence which indicates otherwise.
The California Supreme Court held that the sale price of the subject may be considered even if it may have reflected “project enhancement value.” The court must be able to reasonably determine that that sale price, even if it reflected some project enhancement value of the land, still evinced fair market value. It’s an interesting decision: if a jury is instructed to disregard that part of the compensation representing project enhancement, a claimant could be awarded less than it paid.
The rule is that “the sale of real property in an arm’s-length transaction, if recent and not explained as extraordinary, is the best evidence of value for tax assessment purposes because it directly reflects the property’s market value and does not require the Court to engage in speculation.” Put another way, “[a] recent sale has been characterized as evidence of the “highest rank” in determining value.” We eliminate from recent purchases sales which are not fair market transactions. This would include obvious distress sales such as foreclosures, bankruptcy sales, and liquidated sales by financial institutions. Sales which may include financial incentives or tax benefits would also not be fair market sales. This is one of the reasons why an attorney or appraiser should not simply rely on real estate reporting services, but examine the actual deed and/or interview the parties to the sale.
CLICK HERE to read the full article, which was originally published in ALI CLE’s The Practical Real Estate Lawyer.
 Keator v State of New York, 244 N.E.2d 248 (N.Y. 1968).
 Dennis v County of Santa Clara, 215 Cal. App.3d 1019 (Cal. Ct. App. 1989).
 Ratner v Stark City Bd. of Revision, 517 N.E.2d 915 (Ohio 1988).
 Los Angeles v Retlaw Enterprises, Inc., 546 P.2d 1380 (Cal. 1976).
 Blue Hill Plaza v Assessor of the Town of Orangetown, 720 N.Y.S.2d 527, 527 (N.Y. App. Div. 2002) (citing 50540 Realty, Inc. v Tax Commission of City of New York, 524 N.Y.S.2d 55 (N.Y. App. Div. 2d Dept. 1988).
 Rite Aid Corp. v Huseby, 12 N.Y.S.3d 753, 755 (N.Y. App. Div. 2015).