Case No. CV

Transcription

1 1 IN THE DISTRICT COURT OF THE FIRST JUDICIAL DISTRICT 1 I N D E X OF IDAHO, IN AND FOR THE COUNTY OF BONNER 3 3 WITNESSES: Page 4 6 CARMIN CAPITAL, LLC, ERICKSON TRUST, ALBERT MARTINEZ, et al., vs. Appellants, BONNER COUNTY BOARD OF EQUALIZATION, Respondent. ) ) ) ) ) ) ) ) ) ) ) ) Case No. CV Bonnie Berscheid Direct Cross 30 Redirect 3 Recross 30 John D. Christenson Edward Morse Direct 3 Cross 36 1 HEARING ON APPEAL 1 Rebuttal 334 Cross 34 Further rebuttal 3 BEFORE THE HONORABLE CYNTHIA K.C. MEYER VOLUME II OF II 1 1 Bonner County Courthouse Sandpoint, Idaho October, E X H I B I T S None Reported by: Diane M. Bolan, CSR No. 43 realtimereporter@hotmail.com 4 1 A P P E A R A N C E S 1 October, 01 :06 a.m. 3 4 For the Appellants: Elsaesser Anderson, Chtd. Post Office Box 4 Sandpoint, Idaho 364 BY: J. FORD ELSAESSER, ESQ. KATHERINE A. ELSAESSER, ESQ. 3 4 P R O C E E D I N G S THE COURT: Good morning. It's nice to see 6 For the Respondent: Kootenai County Prosecutor's Office Civil Division Post Office Box 000 Coeur d'alene, Idaho 3 BY: PATRICK M. BRADEN, ESQ. DARRIN L. MURPHEY, ESQ. 6 everyone here. This is District Court, and I'm Judge Meyer, as you know, and we are on the record in Carmin Capital and others versus Bonner County Board of Equalization. We made a lot of progress yesterday, and we're ready to start today. Let me pull this up real 1 1 quick. While I am pulling up this computer program, Mr. Elsaesser, you may call your next witness, 1 1 if you'd like to. MR. ELSAESSER: Your Honor, Katie Elsaesser 1 1 will be taking the next witness. 1 1 MISS ELSAESSER: I'd like to call Bonnie 1 1 Berscheid. 0 0 THE COURT: Miss Berscheid, go ahead and actually, if you'd stop right there and face the clerk, she will swear you in the. 3 3 (Whereupon, BONNIE BERSCHEID, called as a 4 4 witness on behalf of the Plaintiffs, was sworn and testified as follows:) 6

2 1 THE COURT: All right. Go ahead and take a seat here. You were here in court yesterday, so you 3 know to use the microphone. We have a lot of people in 4 the courtroom. Courtrooms tend to swallow sound, have air going, so make sure that your voice sounds louder 6 than you're probably comfortable with. THE WITNESS: THE COURT: Also, keep the tempo down. Keep it nice and slow for the court reporter and for everyone else. All right? Very good. Miss Elsaesser, whenever you're ready. MISS ELSAESSER: Thank you, Your Honor. DIRECT EXAMINATION BY MISS ELSAESSER: Would you please state your name and spell your last name for the record. Bonnie Berscheid, B-e-r-s-c-h-e-i-d. And what's your current occupation? I'm the operations manager for the assessor's office in Bonner County. And what's your education? I have a bachelor's degree in business administration. And you're a certified appraiser? 1 A. I am. I'm a certified property tax appraiser. 3 Q. How did you obtain that certification? 4 A. To obtain a certification to be a property tax appraiser, you have to do a one-year internship 6 with the assessor's office, and you also have to pass two different classes. The first one is State Tax Commission Course One, which is Basics of Mass Appraisal, and then the second course, you can choose from a multitude of courses provided by the State Tax Commission, or IAAO. My second course was Valuation of Land, which is Course 01, and you do have to pass both of those classes, complete your internship, and apply for your certification. Where did you do your internship? At the Bonner County Assessor's Office. And when did you start that? March of 0. When did you obtain your certification? I believe it would have been April of 01. What year was the first land auction on Priest Lake? 0. Did you attend that auction? I did. 1 1 Q. 1 1 A. 1 Q. 0 A. 1 Q. 3 A. 4 Q. 1 1 Q. A. 1 Q. 1 A. 1 Q. 0 A. 1 Q. 3 A. 4 Q. A. 1 Q. What type of an auction was it? A. A VAFO, voluntary auction for ownership. 3 Q. Were there any unleased lots sold? 4 A. No. Q. Who attended from your office the 0 6 sale? A. The 0, it was myself, our chief deputy at the time, Ken Bosch, and my partner at the time, who was Jeff Sandstone. Who made the initial determination not to include auction sales? It was a group decision by our office in general; at that time, our chief deputy, Ken Bosch, our assessor, Jerry Clemons, the team that I was on, myself and Jeff Sandstone. We spoke about it through the whole team of residential appraisers, we consulted our State Tax Commission consulting appraiser, we talked to other counties. And so it was a group effort, not just out of our office. But the ultimate determination was made by who? By our assessor, Jerry Clemons. And what were the reasons to not use these sales? Quite a multitude of reasons, actually. 1 So the State Tax Commission puts out a Ratio Study Manual. In that manual, they talk about 3 you cannot -- or sales generally unsuitable for study. 4 Government sales are on that list. There's also several manuals that IAAO has 6 put out. IAAO is the International Association of Assessing Officers. They are one of the governing bodies over appraisal. There are several publications through them that talk about not only government entities being a buyer or a seller, but also the process of auctions usually being invalid. Again, we consulted our consulting appraiser with the State Tax Commission. We also have 3 decisions from the State Board of Tax Appeals that back us up that auctions generally don't represent market value. Also, the definition in the real estate encyclopedia that I have on my table over there talks about motivation, typical motivation of a buyer and a seller. We have testimony from some of the property owners that they felt forced to buy their property -- THE COURT: Slow down. You're going way too fast. THE WITNESS: I apologize. 1 Q. 1 A Q. 1 A. 3 Q. 4 A

3 1 Q. BY MISS ELSAESSER: I kind of want to circle back to my question. 3 Back in 0, I'm not talking about the 4 entire time this has been going on, but back in 0, technically, for 01, but a determination was made. 6 I'm not talking what's happened since then. I'm talking back then, what was the basis for your determination? So I want to go back to that time period when the initial determination -- Well, all of those publications were available at that time. Again, auctions are generally not considered valid sales. Government entity sales are generally not considered valid. When we looked at those sales comparatively to open market transactions, meaning non-auction sales, they just didn't fit. And so it's not that we ignored them or didn't use them, we just chose not to use them as comparables when setting our land values in Priest Lake. So back for 0, and that's all I'm talking about at this point, it was because of the fact that a governmental agency was selling it, it was at auction. Correct. That was the main basis. It was, and the values that were paid at 1 auction, we didn't agree with how that value was come up with. 3 Q. And at this point, back in 0, how did 4 you know how the value -- how it was determined? A. We were given copies of some of the 6 Hall-Widdoss appraisals. Q. For 0? A. Correct. THE COURT: What was the term that you said? THE WITNESS: Hall-Widdoss. It's the company that performed the appraisal. THE COURT: BY MISS ELSAESSER: So in 01, just for history sake, what happened with the Board of Equalization on the parcels that were purchased in 0? So in 01, the Board of Equalization rolled back all of the assessed values to the price paid at auction. And going into the end of 01, to determine 0 prices, did the assessor's office change its approach to the auctions that have now happened in both 0 and 01? We did. A Q A. 4 Q. A. 1 Q A Q. 3 4 A. 1 Q. And what was that approach? A. So in 01, not only did we have the 3 auction to contend with, we had seen an influx of sales 4 in Priest Lake, so we increased values on the lake in general. When we presented that information at that 6 time, Priest Lake was considered a single market area. We did not account for the different neighborhoods, we poorly accounted for the different attributes of each lot. So in 01, for the 0 assessment year, we took on a new study. We worked with Kootenai County, we worked with our consulting appraiser, and what we did was, we pulled a five-year study of sales and mapped them out, looked for trends, looked for geoeconomic areas, and we found that instead of one singular area on Priest Lake, there are actually four very distinct neighborhoods on Priest Lake that sell very differently. Primarily, the east side and the west side are drastically different. The west side has much more year-round access, it has more services, the roads tend to be better, the gas stations, the marinas, the restaurants, all those things are on that side. The east side has limited access as far as roadways. A lot of the driveways and roadways are 1 1 private or dirt. Once you get past Cavanaugh, there's very limited services. So you don't have the same 3 amenities on each side. 4 And then again splitting not only the east and the west side, splitting the north and the south 6 portion, when you're talking specifically the east side in the southern portion, when you're in the Cavanaugh Bay, Coolin area, there are some services, there are some facilities. When you head up north, there really aren't, and we found a distinction in sale prices not just in location. So that was one thing that we changed for 0. We also started grading lots differently. As I said before, prior appraisers did not account for attributes properly, and so we built the land matrix, which essentially accounted for the major value contributors for each parcel. So you look at things like topography, where is the building site located on the property, what's the quality of the beach. So we re-created that rating system and placed it on our matrix to see if it correlated and made sense, and it did. So not only did we develop new land sales, we developed new neighborhoods, and we also created a new rating system for the lots on Priest Lake

4 1 Q. Did you do... What happened on tax appeals that occurred 3 in the year 0? 4 A. In 0, many of the appellants came back, and a portion of them were given a reduction in their 6 frontage. A portion of them were converted from meander to pin to pin, but only in the instance when the pin to pin was shorter. We actually had, I believe, two cases where the pin to pin measurement would be either the same or longer, so those two were left alone. And this was only for the people that appealed, not for all the people up at the lake. Correct. Currently, how many parcels on Priest Lake percentage-wise are on pin to pin? That's not a definitive answer as far as it's a process that we're working through, so it's a number that's changing weekly. Prior to us working on this project, we used the best information that we had possible. Some of the measurements were meander, some of the old plats were pin to pin. As I said, as technology changes, as our policy changes, we have started converting all those old pin to pin parcels to meander line as we feel like that better reflects the 1 1 actual and functional use of the property. So a definitive percentage I couldn't give 3 you, but when we did our study in 0, of the 33 sales 4 that we studied, only four of those sales were still on pin to pin. So if you translate that to our parcels, 6 you're looking at about percent, if that's reflective. So I don't have a definitive percentage for you. Q. Do you know, back at the end of 0, so prior to the 01 assessments coming out, what's your best estimate, not based on your sample sizes, what was your best estimate of the entire lake being on pin to pin versus meander? Being extremely conservative, I would say less than 0 percent, easily. THE COURT: Miss Elsaesser, pull the microphone closer to you. They're having a hard time hearing you in the back. MISS ELSAESSER: Is that better? THE COURT: BY MISS ELSAESSER: So the parcels at issue in this case, they're the ones that have a meandering line difference, are in a group of less than half of the lake, or a little bit maybe around 0 percent of the lake was being taxed at meander and the other half 1 1 Q. A. 1 Q. 1 A A Q pin to pin. A. Again, without having the exact percentage, 3 but yes, essentially. 4 Q. And it's the assessor's -- I guess my understanding is the assessor's opinion that these 6 bumps and curves along the shoreline add to the benefit of the property. A. It depends on the utilities of those bumps and curves. I know yesterday they referred to primarily rock piles, but that's not what all these are. Some of them have swaths of beach that we do feel add utility. But, for example, the Alice property was adjusted down to remove some of those rock piles. So we do think we've taken into account which of those rock piles or which of those occlusions add value or don't. When was that adjustment made? I believe it was made last year. At the Board of Equalization? Correct. We made a recommendation to reduce the frontage based on those rock outcroppings. How did that issue get brought to the assessor's office? I believe our appraiser at the time reviewed some property photos with the property owner. 1 1 Q. So the assessor had not gone out to verify that all of these bumps and curves were beneficial 3 prior to taxing for those. 4 A. We typically inspected in and 01 were the last inspections. 6 Q. So these -- so the pictures that were needed to reduce it in 01 wouldn't be necessary if you had already visited the site to see that those were not useful. Again, the usefulness of it is based on the appraiser's opinion, does it add to the utility or does it not. So some of these rock piles act as breakwaters. Does that add utility to your property? It does, because it protects your beach line. So, again, it's very subjective as to whether the property owner feels it adds value or does not. So in that case, we did feel like we had made a mistake, and we did correct it at that time. But had that property owner appealed both the 01 and 0 years? I believe Alice bought in 0, so, yes, I believe so. Would that not have been visible or known to the assessor for the following year? Well, in 01, it was irrelevant, because Q. 1 A. 1 Q. 0 A. 1 Q. 3 4 A. A Q. 0 1 A. 3 Q. 4 A.

5 1 the property went back to auction value. In 0, it was rolled back to pin to pin. So those rock 3 occlusions were already taken into account when it was 4 rolled to pin to pin. So 01 was the first assessment year that 6 we actually got to use our valuation, and it wasn't rolled back to a pin to pin value, so that's the first time we were able to make that correction to our own value, not to a BOE value. Q. So, but that wouldn't have happened if he hadn't appealed, even though the assessor had visited 1 his property in 0 and 01. A. Not necessarily that he had appealed, but there are many times where when we're on a property... 1 We visit 4,000 properties, so there are occasionally errors that we find that the property 1 owner brings to our attention, maybe bathroom count, 1 maybe a physical attribute of the property, maybe an 1 easement -- 0 (Interruption by the court reporter.) 1 THE WITNESS: So it's not uncommon that a property owner contacts our office to let us know, hey, 3 this is a concern of mine, can you take a look at it. 4 And we are not perfect, obviously, so we do make corrections as needed. 1 THE COURT: I need to remind you to slow down. Your tempo is just very fast, and while you're 3 very understandable, you speak very clearly, for a 4 court reporter, it's really fast. So just slow down. THE WITNESS: 6 THE COURT: Thank you. Q. BY MISS ELSAESSER: What I'm saying is, this issue of the Alice property specifically had been brought to the assessor's office for three years, and it was only on the third year, when the BOE was taking a position of not rolling back any prices, that you 1 decided to push forward with changing the meandering. A. That particular issue of the rock outcropping had not been brought to our attention from 1 the property owner until last year. Q. So there's never been any issues with the 1 meandering line basis ever brought to the assessor's 1 office in any appeal? 1 A. In the 0 appeal, yes, the meander line 0 was rolled to pin to pin. I'm speaking specifically to 1 a singular property that he felt those rock outcroppings were not valuable, and again, we 3 reevaluated that singular property and agreed with the 4 property owner at that time. Q. But you've said that you visit all of these 1 1 properties with meandering line determinations. A. We do. 3 Q. And at no point... 4 And you say you evaluate what's on the shore as if it's beneficial or not beneficial. 6 A. Correct. Q. Yet this one had been visited twice, and it was only changed when it was appealed for the third year. A. Correct. Q. So do you think that your office is doing a 1 good job of reviewing all of the meandering lines to make sure that it's beneficial use? A. For the 4,000 parcels that we visit, yes, 1 I do feel like we do a good job with the resources we have. 1 Q. Are 4,000 on meandering lines? 1 A. No, we have 4,000 parcels to inspect, so 1 we don't have the benefit of a fee appraiser of 0 spending four or five hours or two days on a property 1 looking at every single attribute. In general, we have about 1 minutes to inspect a property. And so, yes, 3 using the resources that we have with the mandate that 4 we are given, I do feel like we do a good job. Q. I'm talking about your overall job. I'm 1 talking about reviewing the actual shoreline on these meandering which on the plat specifically states "plus 3 or minus." 4 A. Correct. Q. And you understand those were not surveyed. 6 A. Q. Yet that's the basis for your taxation. A. Q. And the fact that there are properties out there that have cleared rocks to the side, you take a case-by-case basis on what one's beneficial and what 1 one's not. A. Q. So is this a depiction of a State plat? 1 A. I believe so, yes. Q. And that would be the meandering line that 1 the County is using as its basis for front footage? 1 A. Without having the field sheet in front of 1 me, I wouldn't be able to tell you if we've made any 0 adjustments on this parcel or if we're using the number 1 off a plat, but that number off a plat is generally what we start with. 3 MISS ELSAESSER: Could we hand Defendant's 4 Exhibit K to the witness, please. Q. BY MISS ELSAESSER: What do you have in

6 1 front of you? A. This is a ProVAL field sheet. 3 Q. And this is for the property of 04 4 Clambake Road? A. Correct. 6 Q. Owned by John and Nancy Davis? A. Q. And how many feet are the Davises being assessed at? feet. And what reductions have been made? The notes on this parcel say "Reduced front footage due to rock outcroppings added to the shoreline measurement. Our platting department measured approximately feet." So you're using what your platting department is measuring and not the plat mark. Correct. So we started with the meander line off of this plat and made reductions for the rock outcroppings. And what's this lot pin to pin? I can't see the plat on that, so I can't tell you. You don't have that information in your field sheet? 1 1 A. No, we don't retain the pin to pin measurement in our field sheet. 3 Q. So when everything was appealed, what; do 4 you just roll back on what the appellant puts forth as a pin to pin? 6 A. What year are you referring to rolling back? Q. The year rolled back to pin to pin. A. We use the pin to pin measurement from each plat. But you don't retain that information? The information that is printed on the field sheet is the current assessed information, so it does not retain the history of it. So you're saying these rock outcroppings were removed from it. Correct. I believe the last page of this exhibit is the plat. So the original meander line on this parcel is feet, and we reduced it to feet. But you don't have the pin to pin information. Well, on the plat here, it's.6 feet. MISS ELSAESSER: Could the witness please have Defendant's Exhibit AA. BY MISS ELSAESSER: And what property is A. Q. 1 A. 1 Q. 1 1 A Q. A. 3 4 Q. Q. 1 A. 1 Q. 1 A Q. 1 A. 3 4 Q. 1 that for? A. This is the Wakeley property on 3 Fourmile Road. 4 Q. And how many front feet are they being assessed at? 6 A. Currently, 1. Q. There's a box of exhibits over there. Could you grab the one that has 66, please. A. Would you please turn to page 1, or exhibit page 1 of Exhibit 66. Is that the same picture that's up on the screen? It is. So this property is the Fourmile Road? I believe so. So those rock outcroppings are included in the assessment on this property? Looking at the plat, I don't believe those outcroppings which jut out into the water are reflected in the meander measurement of 1. If you look at the plat, it's fairly smooth across the front where those outcroppings obviously jut out into the water and are fairly close together. I don't see those protrusions 1 1 on the plat. Q. But if there was sand accumulation between 3 those two, would that be considered part of the 4 meandering line? A. The meander line is where the high water 6 meets the land, so whether it's sand or rocks or bushes in between those outcroppings, it's wherever the high water line meets. Q. Is it typical on these lots where people cleared rocks off to the side? Oftentimes they use them as breakwaters, oftentimes they're just clearing their beach to make way for sand, so we see them quite often. And those are accounted for in the assessment of the property line? Again, it depends on if they're adding utility to the parcel. If they've intentionally piled rocks to protect their sandy beach and use as a breakwater, we do feel that adds utility to the parcel. If it's obvious that they're just clearing the beach and they piled the rocks to the side, we don't feel that adds utility. How do you determine whether those rock piles were to benefit the land or just to clear the beach? 1 Q. 1 A. Q. 1 A. Q. 1 A. 1 Q. 1 0 A A. 1 Q. 1 A Q. 4

7 1 A. That's up to the judgment of the appraiser on the property at the time, looking at placement of 3 the rocks, how they're used, did they just pile them in 4 a pile, or, in this case, they're jutting out into the water where it appears they may be used as a 6 breakwater. But, again, on the survey of this parcel, you don't see those jut-outs in the plat, so I don't believe they're accounted for in that meander line. In 01, were there unleased auction -- or unleased land auctions? I believe the first one was the fall of 01. Did you attend that? I did not. Have you attended any of the unleased land auctions? No. Have you attended any besides the one in 0, any of the other auctions? No. So your basis for how the auctions operate are solely from the 0 auction. My personal experience with the auction is in 0. We meet with the IDL every single year to go 1 1 over auction results. We talk with property owners every single year about auction results. So physically 3 attending the auction one time, yes, but we reevaluate 4 and look at the auctions every single year. Q. Do you understand that the State of Idaho 6 is required to get fair market value for these lands? A. The constitution states they must sell the lots for the appraised value, yes. Q. Do you believe... So you're saying they have to sell for the appraised value, so that's all they need to have? That's what the constitution states, that they must sell for no less than the appraised value. Do you know that they are doing their constitutional duty? But you don't believe the appraisals are accurate. What we disagree with is the market value for taxation purposes. So you're saying there's two market values out there? We're saying, based on your scope of work that, yes, an appraisal is an opinion of value, and depending on what comps you're able to use, what Q. 1 A. Q. 1 A. Q. 1 1 A. 1 Q. 0 1 A. Q. 3 4 A. 1 A. Q. 1 A. 1 Q. 1 1 A. 0 1 Q. 3 A. 4 1 adjustments you're able to make, you can come up with a very different market value, depending on those 3 factors. 4 Q. So just to be clear, you don't believe that the State obtained fair market value for those 6 properties. MR. BRADEN: Objection; asked and answered. THE COURT: Overruled. THE WITNESS: We believe they found fair market value for their purposes. Market value for taxation is under a whole different set of guidelines on what comps we can use, what time frame we look at, what adjustments we can make. They were able to use sales that were much older on different locations other than Priest Lake. The adjustments that we saw made to those appraisals were inconsistent. We also saw in 0, the initial Hall-Widdoss appraisals were oftentimes 0 percent higher than that same company reappraising that same property two years later. So there was a lot of inconsistencies in the appraisals themselves. Again, we didn't agree with the comps that were used, we didn't agree with the adjustments made, so for their scope of work, based on their appraisal value, based on market value, based on the guidelines 1 provided to us by the State Tax Commission, we follow IAAO guidelines, we are constricted on what sales are 3 appropriate to use, what time adjustments we can make, 4 how old a sale we can use. So, yes, you can come to a very different 6 value conclusion when you're restricted on what comps you can use and what adjustments you make. Q. That was not my question. A. Yes, they found market value for their purposes. For our purposes, we feel we have found market value. I would like to rephrase it, because I want a very clear answer on this. Do you believe that the State got fair market value? That's all the question is. For their purpose, yes. Have you looked at the appraisals done for the auctions each year? And how many do you look at? Dozens of them every year. So you personally, or your office? Me personally. And you still have the same issues with the appraisals that are going down currently? Q. 1 A. 1 Q. 1 1 A. 0 Q. 1 A. Q. 3 A. 4 Q.

8 1 A. The company has started using newer sales, more localized sales, but they're also including 3 auction sales as their comps, and so we don't believe 4 the auction sales are valid. So, again, it comes down to how good are your comps, what kind of adjustments 6 you're making. So we do feel they've approved their appraisal process, but we still don't agree with their value conclusions. Q. invalid. So you say that the auction results are For our purpose, yes. But they're being used in the entire scope of an appraisal, not specifically as the total amount; correct? That's not the only thing they're looking at. When you use a low value as a comparable, you're going to come up with a low value. So depending on the quality of comps you use, that's the quality of the end appraisal. But you're saying low value, which would imply the State did not get fair market value. No, low value compared to our assessed value. But we're all coming back to market value, correct, the State definition of market value? Correct. 1 Q. But you're saying there's different ones. A. I'm saying market value is an opinion of 3 value, and different appraisers can have different 4 opinions based on what comps they use and what adjustments they make, yes. A market value is not a 6 stagnant number. Q. Have you looked at appraisals outside of the ones that are being prepared for the auction? A. Yes, we review the appraisals all the time. And so their land value, they're within a pretty close percentage to your value? Fee appraisals from other than Priest Lake? No, for the Priest Lake properties. Can you clarify your question, then? Have you looked at appraisals done aside from the ones for the auction on these properties on Priest Lake? On these properties? Properties at issue. We've seen a couple of bank appraisals, yes. And the land value is within and around your amount? No, not usually. Does it seem odd to you that your amount is A. 1 Q. 1 A Q. 0 1 A. 3 Q. 4 A. Q. 1 A. Q. A. 1 Q. 1 1 A. 1 Q. 0 A. 1 Q. 3 4 A. Q. 1 that different from private fee appraisers? A. No. I think we're focusing so much on land 3 value, you forget, our job is to find market value, 4 which is the total parcel value, not a piece of market value. And so to say you found a land value and call 6 that market value is incorrect. Market value is the most probable price the property would sell for, not a piece of the property. So, in general, our total assessments are oftentimes right at or below what these properties are selling for, but when you focus on one piece of it, that's the semantics of building-to-land ratio of you feel we're overvaluing the land and undervaluing the building, and the point is, our total assessed value, which is the definition of market value, is the total property values are often in line with the market. However, if you undervalued a property, an actual structure, if you are undervaluing that, would that not give you more value in the land to determine a front foot price? If you use that as a basis to set your cost tables, yes, and if you focus on a singular sale. We don't focus on a singular sale. We have multiple sales that we look at with varying prices and buildings. So the other thing that we do is, when we 1 1 do get valid vacant land sales, you compare them, and you see after I've extracted these building values, 3 does my leftover land value compare to what a vacant 4 land sale is, and oftentimes, we're right on the money. Q. What about the unleased land auction is 6 invalid? A. We still consider them valid -- or, excuse me, invalid because, number one, they are still a sale from a government entity, and number two, they're still an auction. So, again, IAAO, the State Tax Commission, they all guide us that we are not to use those sales. Mr. Morse made a comment yesterday that you can use those sales if they're influencing the marketplace, and we 0 percent disagree with that statement. Ninety-four percent of these auctions are being sold to the leaseholder, and so you're not adding inventory nor are you taking buyers when a property owner goes in and buys their own property. So they're not influencing the marketplace. We have seen that in the resale of some of these leased lots, we have seen that in the typical transactions, meaning non-auction lots, that prices are continuing to increase, inventory is continuing to sell. We don't feel that they are influencing the market, and, therefore, we don't use them Q A

9 1 Q. Going back to what my question was, do you -- you don't consider them valid because they're 3 from a governmental agency? 4 A. And because they're an auction. And we don't agree with how the value was come up with, again, 6 in the appraisal process. Q. But these are unleased. You're saying that lots out there on Priest Lake, which you say has a target market, there are people who want to buy; correct? Correct. And there's land out there that's up for bid at what you're saying is low prices. Correct. So why aren't all these properties being snapped up by -- I mean, if you're telling me you can buy a lot for 400,000 and turn around and sell it for 00,000 within a year, why aren't people doing that? Well, I have not made that direct statement today, but what I have said is they have flipped and made money on them. Mr. Morse actually explained it pretty well yesterday, that some of these lots are selling at opening bid, some of them are being highly up-bid, and some of them don't sell. That's the nature of the market. 1 1 Our job isn't to speculate why a property may or may not sell any more than a normal property 3 sits on the market for five years with no offers and 4 suddenly gets a full price offer. Our job is not to speculate. Our job is to study the sales that actually 6 occur. Q. And these are sales that are occurring on Priest Lake. A. They are, and as I said, we study them and consider them -- (Interruption by the court reporter.) BY MISS ELSAESSER: You still consider the sale of these unleased lots invalid. And that is because? Because they're from a government entity, because it's an auction process, and because we don't agree with the valuation that was come up with to set the base value for the opening bid. And you're saying that these unleased auctions do not affect the market. These are unique in that an outside buyer may come in and buy these lots, but it's not a typical transaction to where the market sets a price. When you have a set opening bid, oftentimes in a normal real 1 A. 1 Q. A. 1 Q A Q. A. 1 Q. A Q. 1 A estate transaction, you start with your opening price, and if that price is too high, the market will reflect 3 it in nobody making offers until you reduce that price, 4 or somebody may make a lower offer. In this case, the market isn't able to set 6 the price. You have a set price that's a minimum. You can up that, but that's not typical of the market. The market dictates what your price should be. Again, we don't agree with the base value that was set up through the appraisal process. In order to bid on one of these lots at an unleased auction, you do have to put money down and wait for that auction to happen, and, hopefully, when that -- so it's just not representative of a typical market transaction. Now, if these were the only sales we had on Priest Lake, then we would have to use them because that's all the information that there is. But we have plenty of regular market transactions. Again, we don't find that the sale prices of these auction lots are affecting those normal transactions or non-auction transactions, so, no, we don't use them. Are all of those elements that you just used as your reason found in the definition of "market value," in the state code? 1 1 A. No. Q. So above and beyond, you're putting 3 restriction on these, you're excluding an entire group 4 of sales, based on your own -- the assessor's own reasons and not the statute. 6 A. No, there's not just statutes that we have to go by. Again, we're governed by IAAO, we're governed by USPAP, we're governed by the State Tax Commission, and those are all sources we have gone to. And yes, part of the definition of market value is an informed buyer and informed seller, typical motivation -- (Interruption by the court reporter.) THE WITNESS: And so we don't feel those auction lots meet those criteria. BY MISS ELSAESSER: Where in the statute does it talk about typical motivation? It does not cite that. When you look at like, for example, the Encyclopedia of Real Estate Appraisal, it very specifically cites motivation of your buyer and seller. When we are validating sales, there are a multitude of things that we look at that are not specifically stated in the definition of market value per Idaho Code. And in these unleased lot sales, is the Q Q. 1 1 A Q.

10 1 State a willing seller? A. Yes and no. 3 So when the Land Board decided to divest 4 these properties, they're not allowed to just sit on them until a good offer comes around. They are part of 6 a process of auctioning. And so if you're not there on the day of the auction, you can't buy that property. And so it's not a typical market transaction. Willing seller, are they willing to sell that property and reinvest the money, yes, but willing seller as in can it sit on the market until the appropriate price comes around, no, it can't. Who's forcing it to be sold? The mandate from the Land Board to divest these properties. What mandate is that? When they decided to divest in these properties and reinvest to a more profitable enterprise. So you're saying that there's a document out there from the State Land Board saying these properties must be sold by this date, by auction, no exceptions. As far as I know, the property owners have the ability to buy the lots at auction, continue their 01 1 leases, or abandon the lease and the lot would go for an unleased auction. 3 Q. And how does one become an unleased 4 auction? A. The property owner has abandoned their 6 lease, or the lease expired and they chose not to renew it. Q. Every year unleased lands are just put up for auction by the State Land Board. Is that the only process needed? There are auctions to sell the lease, there are still ten-year leases being signed, but in general, if there's no interest in that lot as far as renewing a lease or selling the lease, a personal -- a person could go to the Land Board, state their interest in that lot going to auction, put some money down, and then attend the auction and bid on it. But how is that being forced? You're saying that the State had to put these out for sale. Correct. Their job is to maximize income for the endowment fund, and so they're not able to just let the lots sit vacant on the market for the next ten years until the best price comes around. What they have to do is divest in these properties. In speaking with the Land Board, it's all a 0 1 Q. A. 1 Q. 1 A Q A. A Q. 1 0 A scheduled process, so they're hoping in the next few years that all these lots will be divested in. So a 3 typical market transaction, that lot will sit on the 4 market until an appropriate price is met where, in this case, they don't have the ability to just let these 6 lots sit, available for anybody to make a bid at any time. Q. But they do have the ability to not be sold. Correct. And then later on, there's an interest to be sold at auction. Correct. So the fact that these lots could sit for a period of time unsold until the right person comes along to offer market value, you say none of that matters to the assessor. I never said it doesn't matter. I said they're not valid transactions. But we have a willing seller, we have an informed buyer, everyone going into this knows what they need to do, and, yes, they have to put money down, but isn't a down payment typical in a real estate transaction? It is, but you're getting away from the 03 1 fact that the State mandates in the Ratio Study Manual, in the IAAO manuals that government sales and auction 3 sales are not to be considered valid. 4 THE COURT: Let me just caution the audience for a moment. I have not said anything before 6 now, but I'm going to say it now. There have been nods or shakes of heads from time to time, and I think that's kind of natural when we agree or disagree with someone to -- you know, for our body language to reflect that. But it's really important when we're in a court trial not to do that. It is excruciatingly important when we have a jury, and we don't have that, but keep your body language to yourself, so to speak, no more nods or frowns or, you know, shakes of heads. Just please listen politely, and we'll just take it from there. Thank you. Miss Elsaesser? BY MISS ELSAESSER: You testified earlier that the exception on the IAAO standards doesn't apply because these lots are not affecting the market. We don't believe they do. So if it was not the leased lots, if it was just all these lots out there owned by an independent landowner selling them, would it be affecting the market? 04 A. Q. 1 A. Q A. 1 0 Q A Q A. Q. 3 4

11 1 A. Q. What's the difference? 3 A. Again, whether or not it's a valid 4 transaction. Q. I'm not asking about valid transactions. 6 I'm asking about how it's affecting the market. Because that's a separate issue; is that not correct? A. It is separate. So, again, because 4 percent of these auction lots are being sold to the leaseholders, they're not taking buyers away from the market, because these people aren't out shopping for a recreational lot on Priest Lake. They're there strictly buying their own lot. So you have not altered inventory, because they're buying their own lot, and you have not taken away buyers, because they're buying their own lot. They're not out shopping for any lot available or shopping for a good deal. They're specifically buying their own lots. What about the unleased lot? That's a very small percentage of these parcels. Again, 6 percent of all of the auctions are the unleased auctions. And again, when we look at the prices of these unleased auctions compared to private transactions, meaning non-leased auctions, they don't fall in line. And again, we don't agree with the 0 1 prices, we're not able to use them because they are government auctions, and so no, we don't use those 3 auctions. 4 Q. That's not what I'm talking about. I'm asking you about affecting the market. 6 A. In this case, yes, 6 percent of the buyers are coming from the marketplace, yes, but they are still not valid transactions. Q. That's not what I'm asking you. I want -- I did answer yes, the 6 percent do affect the market. I did. So why aren't those sales used? Because they're invalid transactions. Can I please have Defendant's Exhibit HH. Do you recognize this document? Is this the standard which you're referring to on IAAO? It is one of them, yes. The part that's bolded or highlighted by your department often is the sales involving government agencies Q. 0 A A. 1 Q. A. Q. 1 A. Q. 1 1 A. 1 Q. 0 1 A. Q. 3 4 A. 1 Q. Does it say that they are invalid? A. It says "generally considered invalid." 3 Q. Where does it say "generally considered 4 invalid"? A. Under heading.3. 6 Q. Below that, on the actual text of it. A. "The following types of sales are often found to be invalid and can be excluded unless a larger sample size is needed." So right there, does it say that they shall be excluded? No. Do they say that they have to be excluded? No. Do they say that they are invalid? No. Going down to.3.1, on the third sentence, could you please read that out loud. Are you referring to "The latter should not be considered in model calibration or ratio studies unless an analysis indicates government sales have affected the market in specific market areas or neighborhoods"? So those unleased lands, why would those not be considered? 0 1 A. They're generally a small sample size of the market as a whole. When you look at the statute -- 3 for example, foreclosure sales are generally considered 4 invalid, unless they make up 0 percent of your market sales. And so where this is such a small percentage, 6 again, the prices of these lots don't fall in line with typical market transactions, so we don't use them. Q. Typical market transactions, you're looking at properties that have structures on them. No, typical market transaction, meaning a non-auction situation. No, but I'm talking about in comparison to here. The ones you're citing to for our purposes that you view as your comparables have structures on them; correct? Not all of them, no. The majority of them? A good portion, yes. And you're using -- to obtain the front footage value, you subtract what you have listed as the residential structure value. Correct. So as we spoke earlier, if you have a structure value very low compared to the land sale, what you're determining is the land sale value, you end 0 Q. 1 A. Q. A. 1 Q. A. 1 Q. 1 1 A Q. A. 1 Q. 1 A. 1 Q. 1 A. 1 Q. 0 1 A. 3 Q. 4

12 1 up with a higher front footage than if the building... Let's do a hypothetical. 3 $0,000 lot. $0,000 building you have on 4 your record. You would say it was 0,000 for the property. 6 A. Correct. Q. And then you use that 0,000 to determine front footage for the property. A. It is used in the study. We don't directly just apply that 0,000 across the board, but in general, that's the beginning of the process. So if you have a structure that you have valued at what's not the market value of that, would that skew your numbers? Well, we believe the values are correct and at market value. So based on whose opinion those buildings are undervalued would skew your answer. That's not what I asked. I said if, if the structure value was incorrect, would that not skew your land value? It would. THE COURT: Let me ask a follow-up, and, of course, attorneys can object to this. I want to stay with the hypothetical as I understand it, but I just want to clarify something. 0 1 So you're using a sale; correct? THE WITNESS: Correct. 3 THE COURT: And then reducing that sale 4 price by the value of the structure, as assessed by your office. 6 THE WITNESS: Correct. THE COURT: So if the sale price for the total property, including the structure, was higher than the assessor's office total assessed value, would you still only reduce it by the assessor's office assessed value of the structure? THE WITNESS: No, and that's where I believe this becomes so simplistic. We do quite a few studies before we just extract an assessed value. So we look at the improvement values each year and see how are homes of that quality selling, how are homes in that neighborhood selling. We adjust it to the market before we do a straight extraction. So we don't simply extract our most current assessed value. We study the building value to make sure it's appropriate before we extract it out. THE COURT: Thank you. BY MISS ELSAESSER: Does your office monitor how many unleased land parcels at the lake go 1 Q. 1 A. 1 1 Q A Q. 1 up for auction that are not bid on? A. I believe our team does, yes. 3 Q. And the fact that there's lots being, in 4 your office's view, undervalued up for auction and not being purchased, what do you attribute that to? 6 A. Again, the nature of the market. It's not our job to speculate why a property may not sell until the right buyer comes along, typical of any lot. Sometimes they sit until the right buyer comes and they make an offer. It again is not our job to speculate that. But you're saying that these values of these parcels are substantially under market value. "Substantially" is not a statement that I've made here today. Sometimes we find that we're within $0,000 or so, but sometimes we find we're hundreds of thousands off. So it depends on the particular lot, how varied we believe we are from that price. But in some of these parcels, we're looking at 0 to 0 percent higher on your assessed value; correct? Correct. And that doesn't seem... So in that situation, would you say that 1 that parcel was sold for below market value? A. No, we believe they sold for market value, 3 based on their scope of work. 4 Q. So a separate market value. A. Market value for taxation is very 6 different. Q. Could you please get Plaintiff's Exhibit 3. I believe it's a different binder. A. Go to page of that, please. That's the same item that's up on the screen. Do you know where this property is? 1 South Shores. Is that property being used by your office as comparable in some of the parcels at issue? I don't have my sales list in front of me, but I believe so. Would you go to page 4 of that exhibit. When was the sale date that you have on there? It's August 1st, Q. A Q. 1 3 A. 4 Q. Q. A. 1 Q. A. 1 Q. A. 1 Q. 1 1 A. 0 1 Q. A. 3 Q. 4 A.

13 1 Q. And for how much? A. $, Q. So the judge asked the question about how 4 you subtract the value out, and you said that you reevaluate the structure when you have a sale before 6 you attribute a certain amount to land and a certain amount to structure; correct? A. Correct. Q. So we have, just for simplicity's sake, a million dollar sale, and how much of that was attributed to land versus structure? It would have been $1,0. And to go to page -- THE COURT: Wait a second. The question was attributed to land versus structure, so what does the 1 -- THE WITNESS: 1,0 is the structure value. BY MISS ELSAESSER: Go to page, please. And that's for multiple structures; correct? Correct. So for the actual dwelling, how much is that dwelling? $,30. And it's your testimony that that is the -- 1 that's an accurate value of this property? A. 3 Q. And for how much have you valued the 4 attached garage? A. $3,0. 6 Q. And that's an accurate value -- from your testimony, that's an accurate value of the detached garage? A. How did you obtain the amount the sale was for? The sale price? I don't have my sales sheet in front of me, but oftentimes we get our sales information either through MLS, through buyers and sellers, through deed research, sometimes through appraisals, and this particular one, I don't know. Does a detached garage have value if it has guest quarters? Yes, it does. And that would be reflected in there? It is. So you're saying that of a million dollar sale, only just under 0,000 for the house and 1 A. Q Q. 0 1 A. Q. 3 4 A. Q. Q. 1 A. Q. A Q. 0 1 A. Q. 3 A. 4 Q. 1 3,000 for the detached garage are attributable to value, the rest is all land. 3 A. Well, there are other buildings, but yes. 4 Q. The other buildings being the boat lift, boat dock? 6 A. There's a carport, yes. Q. But a majority of it would be the two, I guess, residences. A. THE COURT: Why two residences? MISS ELSAESSER: Well, there's a detached garage that has living quarters in it. BY MISS ELSAESSER: So your testimony is that this comp, which was used throughout -- well, I'll represent to the Court it was of these parcels, that of this million dollar sale, only 1,000 you said -- 1, ,0 is value of the structures, the rest is all land. Well, if you note by our assessed value, it sold for a million dollars, and we're still at 6, so you can't say all that million dollars minus 1 equals the land. Again, we are still conservative on our valuation of this property. But, yes, only 1,000 of that total assessment we're attributing to buildings. 1 1 Q. And then from that, that's where you get your land value that you then use as a comparable. 3 A. Correct. 4 Q. Did you increase the structures' values after you had the sale? 6 A. We did. Q. And how much was that? A. It went from $,30 to $1,0. Q. So you attributed roughly $1,000 increase in value of the structure. So by the logic of this method, the extraction, if this were to be bulldozed out, that land could then be sold for,000, that bare lot. Well, a portion of that is attributed to site improvement, driveway. If you're talking vacant land, about 00,000. But, again, when you look at the total assessed value compared to the sale price, we're still not at that sale price, so the land and building values are still very conservative relative to the sale price. So, yes, we do feel that lot would sell for around 00,000. And what about that lot indicates that it would be 00,000? What attributes does it have? We have it graded as an average lot, so 1 Q. 1 1 A. 1 Q. 1 0 A A. 1 Q. 1 A Q. 4 A.

14 1 meaning... On our matrix, there are several ways to 3 get the average, looking at a decent beachfront with a 4 sloping lot, you may have a flat lot with a rocky beach, so there are different ways to get to an 6 average. But we do consider it to be a mid quality lot with front feet. So, again, based on the land scales that we've built, that gets you out to the adjusted land value. Would you say that lot is a typical lot for that neighborhood? "Typical" is not really a great word to use on Priest Lake. Each lot is extremely unique and extremely difficult to categorize into just four different land grades. So being average, meaning it's not the best lot on the lake, but it is also not one of the worst ones, so it is typical in that it's in the mid range. When you're determining value of structures, do you account for the location of the structures for where construction would have to occur? We do, absolutely. So is there a variation for Priest Lake because of the remoteness of it? Each market area is given its own -- it's 1 1 called a local cost modifier, which relates the building cost to that local neighborhood. So we do 3 study the market areas. 4 For example, Switzer is quite high to build on, so there is quite a high LCM on Switzer. So yes, 6 we do evaluate the different market areas to look at what construction costs are compared to our cost manual. Q. But you're testifying that this custom built log cabin is worth,00 -- Your custom built, -year old 00 square foot cabin, yes, we do feel that's an appropriate value. Because of the position the assessor's office has taken on these sales, is it your understanding that there's -- at no point would you determine the sale by the Land Board or the Department of Lands would be valid? Again, based on the guidelines that I've provided earlier, it's our position that we are making the correct decision, but, again, as Mr. Morse stated, if we find that those auction lots are influencing the market in general, we can use them. If that was the only sales data that we have and we didn't have regular market transactions, then we would use that data. But, 1 Q. 1 A Q. 0 1 A. 3 Q. 4 A. A. 1 Q A again, we have quite a few non-auction transactions occurring that don't reflect the same prices that the 3 auctions are pulling. We also have a multitude of 4 prior auction lots that have now resold for quite a bit more than was purchased at auction, and for more than 6 we have assessed, and so until the point comes that these auction lots are more in line with what we feel to be market value, or if they are shown to be a major market influence, we will continue to not use them. Q. But you're saying all of these current structures, let's say the parcels at issue, are 1 correctly assessed. A. In our opinion, yes. Q. If those are the correct amounts, then 1 you're saying that the land values are really that high. 1 A. 1 Q. Despite the fact that there are lots out 1 there on the east side of Priest Lake not being 0 purchased. 1 A. If you're referring to the unleased lots, yes. 3 MISS ELSAESSER: Your Honor, would it be 4 possible to take our morning break a little early? THE COURT: Absolutely, and I was going to 1 1 suggest that. I think this would be a great time for it. It's :1. Let's come back at :30, and we'll 3 just keep going after that until the noon hour. So we 4 will be in recess for 1 minutes. (Recess.) 6 THE COURT: All right. Before we get going -- oh, I'm sorry I'm coming back here so late. Let me just remind you to keep the tempo down, breathe between sentences. You're doing a good job of keeping the tempo, slow down, Miss Elsaesser, keep it up. And it's 1 just really hard for a court reporter to keep those fingers flying that fast, especially using terminology that we're not all familiar with. So keep it slow. 1 Thank you. Go ahead when you're ready. MISS ELSAESSER: Thank you, Your Honor. 1 Q. BY MISS ELSAESSER: I want to touch back on 1 some statements you've made about generally not 1 considering auctions, or you don't consider any auction 0 results; correct? 1 A. We're not considering the current auctions to be valid sales. 3 Q. Do you consider any auctions currently? 4 A. We look at each individually, but, no, we don't currently use any. In our 01 study, we did 0

15 1 not. Q. Do you associate the auctions for the VAFO 3 or the unleased auctions to be the same as, like, a 4 foreclosure or sheriff's sale? A. No, the circumstances are widely different. 6 Q. What's the difference? A. In a foreclosure sale, you're essentially just trying to get whatever debt is owed. This is not that case. In this case, the IDL is divesting the properties in order to reinvest it in another venture. Is it also the fact that there's a set value that must be obtained before the property is sold? No, I don't think that that is a baseline for us not using it. We may not agree with that baseline value, but that's not the reason we don't use them. When you review these properties to determine their value, do you consider any restrictions placed by the Department of Lands on the property? Can you define what kind of restrictions you're referring to? For instance, a single-family residence. We do consider density on parcels. That is not atypical of those lots. But being a single-family 1 1 residence on a single parcel does not limit what you can do with the property. 3 For example, one property owner, Mr. Alway 4 (phonetic), purchased his single lot from the auction and has since split it in half and sold half of that 6 property. So it does limit one single-family dwelling per parcel, but it doesn't limit that you possibly could split your parcel, you could build accessory dwellings. There are several of these lots that do have accessory dwelling units above garages, shops, things like that. But we do consider that and is that typical for the area. You don't consider the actual functional use? We do. But when you talk about that example of the splitting of the parcel, whether the County approved that split or not, do you know if that violates the CC&Rs? I don't know. So your conclusion that it's -- they could split it off and sell it, you don't actually know if that's a valid transaction. Well, the plat has been recorded and approved by our county commissioners, and the sale has Q. 1 A Q A. 3 Q. 4 A. 1 Q. 1 A. Q A. 1 Q. 3 4 A. 1 been recorded, so to our office, that is a valid transaction. 3 Q. But that doesn't mean that it's actually 4 allowed by the CC&Rs. A. Well, there are property owners all the 6 time that create illegal splits by recording their own deeds. We have to recognize the recorded deed, which in that case, it was a recorded plat, it was approved by our county, so we do recognize that now as two lots, not one. But to use that as your explanation that these restrictions don't apply -- I did not say that they don't apply. I said we consider are they typical for the area. Well, are they typical for the east side of Priest Lake? In that whole swath of leased lots, yeah, that is typical to have a single family dwelling, and in most areas, it's zoned single-family dwelling with the possibility of accessory dwellings. And all these parcels when they come in from the Department of Lands, what are they zoned? They're zoned recreational. What does that allow for? A single family dwelling with, I believe I can't remember if it's one or two accessory buildings. 3 Q. Back to the pin to pin and meandering, 4 earlier we touched on -- so the year of 0 and then the year of 01, the two tax years at issue, your best 6 estimate was somewhere less than 0 percent are still being taxed at pin to pin. A. Correct. Q. On usable parcels that are pin to pin, do they have some of what you have termed beneficial uses with sandy beach spits, outcroppings, rocks, any of that stuff? Do those parcels have those? I don't know specifically which parcels, but I would imagine some of them have benefits and some have detriments, yes. So in the tax year of 0 and the tax year of 01, the parcels on there that are being taxed at meandering are being taxed for more per front foot than, say, a neighbor being taxed pin to pin with a similar situation, similar parcel? That would depend on the variance from pin to pin to meander. In often cases we see minimal differences in that measurement, but if there is a difference from a pin to a meander, yes, they would be receiving the benefit of that pin measurement. 4 Q. 1 A. 1 Q. 1 A Q. 3 A. 4 Q. A. 1 A. 1 Q A. 3 4

16 1 Q. So the taxation would not be fair across the board in the neighborhood. 3 A. It would not be uniform. 4 Q. It wouldn't be uniform, which would be an unfair tax on certain parcels. 6 A. Potentially, yes. Q. And the assessor's office decided that it's okay to unfairly tax certain parcels, because the goal in the end is all meandering, so it's okay to do it now. No, it is not -- we're not okay with it, which is why we're converting these lots. Unfortunately, it's not something that you can snap your fingers and have it be done in a day. It's a process of converting. So we worked prior to this with the best information possible, and sometimes that best information was the plat from that only listed the pin to pin measurement. So, again, it is a process. It does take time to complete. We 0 percent agree that it's unfair, which is why we're in the process of converting them. But why has the assessor's office chosen to tax meandering versus pin to pin when all the information on the lake is -- 1 A. Would we rather not tax anything? I mean, you have to go with something. You have to use the 3 best information possible, and in some cases, that best 4 information at this point in time are the old plats. Q. But what I'm saying is, at this point, 6 you've created two separate classes. A. We did not create those two separate taxing classes, no. Q. The assessor's office changing from meandering versus pin to pin is a change. It is not a change. It is prior to us deciding to move forward to convert everything. A good portion of these lots were already meander, so converting the remaining is not something we just now decided to do. Again, most of these parcels were already on the underlying. We are in the process of converting the ones that are not. But you have two classes now, and you're saying, well, we can't just not tax, but you have other information, you have pin to pin that you could go by, but the assessor's office has chose to create two classes that are being taxed differently on their front footage, because in the assessor's opinion, all those bumps and sways can have beneficial use. MR. BRADEN: I object as calling for a 6 A Q. 4 A Q legal conclusion to the extent that she's trying to get the witness to testify that it's creating two different 3 classes of properties. I think that's properly a legal 4 question. THE COURT: Well, I'm going to sustain the 6 objection, but not on that basis. I don't know that that's calling for a legal conclusion. I think it's something that this witness can answer, but I do believe the question was vague and possibly compound. Q. BY MISS ELSAESSER: I'll clean that up a little bit. 1 With the pin to pin versus meandering on Priest Lake, do you have parcels that are being treated differently? 1 A. Q. And that's the assessor's policy at this 1 time. 1 A. It is our policy to be converting them. In 1 the instance that you were referring to, if you would 0 prefer us to go pin to pin rather than meander, you're 1 in the exact same situation, where more than 0 percent of these lots are meander. So it would take us several 3 years to convert those over. So either way you go, 4 whether we choose meander or pin to pin, it's a conversion process, and at the end of the day, are we 1 finding market value of that parcel. Regardless of how you choose to measure it, you still have to find market 3 value. 4 Q. Going back to my question, let me clarify. When you're saying there are meandering 6 already on there, are those surveyed meander lines? A. Not all of them, no. We have unplatted parcels that don't have surveys where our cartographer has measured shoreline. We do have plats that show shoreline, and we do have plats that have only pin to pin that have been measured for shoreline. 1 Q. But I'm going back to when you said all these ones had meandering on them prior. So you're saying that the ones that have meandering on them -- 1 separate from the land parcels, start there -- those parcels already had meander on them, were they survey 1 lines or the lines drawn by the county? 1 A. That's what I just answered. Some are from 1 surveys, some are from our cartographer. So it just 0 depended on what information we had available. 1 Q. When did the cartographer start doing the meandering? 3 A. Gosh, we have notes from the `0s from Ron 4 Self, who is a cartographer. Now Joe Ellsberg (phonetic) is our certified cartographer. So it's been

17 1 going on, as far as I know, since the `0s. Q. So it's been going on almost 0 years and 3 they're still not done? 4 A. We just recently, as I said, decided to convert all the rest of them. 6 Q. And that's what I'm talking about, the conversion. When did that start? A. In 0, when we started redoing the matrix. So if that's the point the assessor's office continued with the -- I guess you're switching everything to meander, but at the current time, you are taxing two separate groups. We don't tax, we assess. You're setting the assessed value separately. And that could be unequal, based on the type of land each parcel owner has. Potentially. MISS ELSAESSER: That's all I have. THE COURT: Cross-examination. Mr. Braden? MR. BRADEN: Yes, Your Honor. And before I start my cross-examination, I was actually going to maybe throw out a suggestion, if counsel is willing to 1 stipulate to that. I would go ahead and cross-examine based 3 within the scope of Miss Elsaesser's questioning and 4 then kind of segueway into my own questioning on direct, and, you know, certainly then Miss Elsaesser 6 will have a chance to cross, et cetera. And I think that way, we can get done with Miss Berscheid's testimony all in one fell swoop and maybe be done early. THE COURT: Any objection, Miss Elsaesser? MISS ELSAESSER: No, Your Honor. THE COURT: I think that makes some sense. Go ahead. MR. BRADEN: Thank you, Your Honor. CROSS-EXAMINATION BY MR. BRADEN: Miss Berscheid, first of all, going back to your foundational questioning on your education and experience, besides operations manager, what other positions have you held in the Bonner County Assessor's Office? I am currently the acting chief deputy, meaning if the assessor and the chief deputy are both out of office, then I am the acting assessor, and I have also been a residential appraiser. 30 Q. 1 A. 1 Q. 1 A. 1 Q. 1 0 A Q A Q. How long total have you been employed there? 3 A. Four-and-a-half years. 4 Q. Are you a deputy Bonner County assessor? A. 6 Q. Go ahead and describe your duties in that office. A. So as an operations manager, I have quite a wide berth of things that I do. One thing I manage is land exemptions, agriculture exemptions, I manage those. I also do all our staff training. So any time we have new employees that come in, any time we have statute updates, policy updates, we do monthly field training, we take different courses on, say, how to deal with disgruntled employees, how to deal with disgruntled property owners, different things along those lines. I also do QA and QC on all our field appraisals, so any time all the properties are appraised, I do a review on them, as well as our chief deputy. I also do sales analysis, and so throughout the year we collect sales from MLS, through buyers and sellers, we do deed research, and so I collect those, I 31 1 stratify them. I do initial analysis on those before they go to each team. 3 I help develop land scales, I help do the 4 studies on structure values, on outbuilding values. I generally represent our office during DOEs and tax 6 appeals, I help our appraisers go through those hearings. So there's quite a few things that I do for our office. And if I could just have you slow down a little bit while you're answering, I think everyone will appreciate that. How long have you been employed there? Four-and-a-half years. I think you answered that already. Do your duties include reviewing appraisals of the appraisers you supervise or work with? It does. And how many times have you testified before the Bonner County Board of Equalization? Hundreds. How many times have you testified before the Idaho Board of Tax Appeals? Probably a little over 0. In what roles have you participated in the Q. 1 A. 1 Q. 1 1 A. 1 Q. 0 1 A. Q. 3 4 A. Q.

18 1 Board of Tax Appeals hearings? A. In the BTAs I have presented not only as a 3 residential appraiser defending cases, but now I 4 provide more of a supervisory role, providing statute, methodology, and essentially backup for our appraisers. 6 Q. If I could have the clerk provide you with Defendant's Exhibit A, please. If you could look at that and let me know when you're ready. Do you recognize that document? I do. What is it? It's my resume. And what information is contained in it? It shows my job history going back through 00, it shows my education, professional certification, different training courses that I've taken, and then additional skills. Did you prepare it? I did. Is this a true and correct representation of your education, training, and experience in the field of real estate appraisal? It is Q. Could I have you go ahead and read the training courses that you have listed on there. 3 A. Yeah, absolutely. 4 THE COURT: And before you do that, would you pull the microphone closer to you. 6 Thank you. Again, hard for people in the back to hear. Go ahead. THE WITNESS: So I was taking the State Tax Commission Boundary Disputes and Discrepancies course; IAAO course 300, which is Mass Appraisal; IAAO course 01, which is Appraisal of Land; IAAO course 1, How to Critique a Fee Appraisal; State Tax Commission, Appraisal course Number 1; State Tax Commission, Data Modeling; State Tax Commission, Valuation of High-End and Unique Homes; State Tax Commission, Forest Land Appraisal... Do you want me to keep going with the non-appraisal courses? No, I think that's sufficient. Thank you. What does IAAO stand for? It's the International Association of Assessing Officers. And what does MLS stand for? MLS is the Multiple Listing Service. And is that local, national? 34 A. Q. 1 A. Q. A. 1 Q. A Q. 1 A. Q. 3 4 A Q. 0 1 A. 3 Q. 4 A. Q. 1 A. Ours is the Selkirk MLS, which is local, but the MLS service is -- 3 Q. What area does that cover? 4 A. Bonner County. Q. You testified that your appraisal 6 techniques and methods, including some of the specific ones we've discussed today, were based on information that you've received from the State Tax Commission, and you mentioned State Tax Commission consulting appraiser. Do you recall who that is? It's Brad Broenneke. Are you familiar with a person named Alan Dornfest? Who is he? He's the State Tax Commission policy chief. How does he relate with the counties that assess parcels? So not only does he help create the policies that guide our office, he also reviews our ratio studies each year. So the State several times a year comes in and checks our assessment levels, and before our assessments can be finalized, Alan Dornfest has to review the ratio study and approve it. And what are the consequences of not 3 1 approving a ratio study? A. Well, your first warning, essentially, they 3 let you know -- for example, if your assessment ratios 4 are too low, they will come in and tell you to reevaluate your assessment levels, which ultimately 6 means going back through your sales studies, seeing where you can increase more. If you continue to be too low, the State can actually come in, replace the assessor, and set their own valuations. And what constitutes approval of a ratio study? So they look at several things. The most common one is our ratio level. So the State requires that our assessments be within 0 to 1 percent of our sales, and so that's the primary factor that they're looking at. They also do a gamut of statistical studies. They look at our COD, our COV, our PRD to see -- Stop there. Can you explain those acronyms. Yeah, so our coefficient of variation, our coefficient of dispersion, our price-related differential, these are all measurements of uniformity, essentially. And so they show us how tight our sales 36 A. 1 Q. A. 1 Q. A. 1 Q. 1 1 A Q. Q. 1 A Q. 1 A. 3 4

19 1 data is and how tight our assessments are compared to our sales. And you may have a good percentage, but if 3 your uniformity is bad, then they will come back in and 4 make us re-look at it. So there's quite a few factors that they consider. 6 Q. Has Mr. Dornfest or anyone else at the State Tax Commission given the Bonner County assessor advice with respect to sales by governmental entities? A. Mr. Dornfest himself has not personally, but in his Ratio Study Manual, we do find his guidance. Our consulting appraiser, Brad Broenneke, we have met with him on multiple occasions to discuss the Priest Lake issues, the meander issue, the auctions, and he has advised us and helped guide our decision on how to use those sales. Do you know of any other counties that have taken the same position with respect to government or auction sales? Well, the IAAO guidelines and the ratio studies, those apply to all appraisers. The ratio study is specifically to Idaho, but IAAO is the international association, so those guidelines are widespread. What about same question with respect to how you measure shorelines? 3 1 A. We did talk to several other counties. The assessor for Payette Lake, who has a very similar 3 situation, they have leased lots that sold. We've met 4 with Mike McDowell and Rich Darren (phonetic) at Kootenai County. They helped us develop our waterfront 6 matrix and how to look at these lots better, and, to our knowledge, they used shoreline. Q. Is the county where Payette is located, is that Valley County? I believe so. Do you know how long Mike McDowell has been the Kootenai County assessor? Oh, gosh. Long time. I can't give you a number. But you know it's been a long time? It has, yes. What's the basis for appraisal of real property for purposes of assessment, as required under Idaho law? Well, our purpose of appraisal, we have to find fair market value. And generally, as you understand it, how is that defined? Fair market value is the most probable price that would be paid for a property with a willing Q A Q. A. Q. 1 A. 1 Q. A. 1 Q A. 1 Q. 3 4 A. 1 seller, willing buyer, knowledgeable buyer, no undo distress, typical motivation, financing in cash or down 3 payment. But, yeah, essentially, it comes down to the 4 most probable price paid for a property. Q. What is an improved sale? 6 A. An improved sale meaning a property that has structures on it. Q. And how are improvements defined? A. So we are taught different classifications of structures. Obviously, there's residence, there's a myriad of different outbuildings that we label based on what they are. So it's something that we're taught both in appraisal school, we're taught in our costing manuals, and then we do in-house training on how to define and value those buildings. What are site improvements? Site improvements are improvements to the land, meaning driveways, building pads, your utilities. So anything that you would have to put on the land to prepare it for a building. Are they attributed to improvements or land value? They're improvements to the land, so we classify them in the land category. What's residual land value? 3 1 A. It would mean if you had an improved sale, after you've extracted the value of the structures and 3 extracted any value attributable to the site 4 improvements, what's left over is essentially your residual land. 6 Q. And how do you obtain information... That's been answered already. Never mind. How do you select sales for use as comparable sales? So when you're looking at a sale to determine if it's comparable, one of the biggest factors is location. That sale has to be in the same geomarket area as your subject, because location is a huge driving factor. After you've localized your sale, you're going to start looking for properties with very similar characteristics. So you look at the physical attributes of your subject, and then you want to find sales with the most similar physical attributes. Also, structure-wise, you want to find the most similar structures, because the less adjustment you have to make to a sale, the more comparable it is to your property. So describe the process by which you Q. 1 A Q. 3 A. 4 Q. A Q.

20 1 determine the value of improvements to real property. A. So the first thing that we do is inspect 3 those improvements, and we all receive training on how 4 to grade a property, meaning what's the quality of the construction, what are the quality of the building 6 materials. We also look at the age of the structure, how well-maintained is that structure. Age is a large factor. How much is it depreciating. So all of those things are collected when we are physically on the property, and then we input that information into our CAMA system, which has costing tables built in. We use the Marshall & Swift costing tables. Each year we reevaluate those costing tables to see if there are market influences, we develop LCM, which is a local cost modifier, meaning, a hypothetical, let's say a brand new, average-built home is costing out at $0 per square foot and we find that those homes are actually costing $1 per square, then we would put a percent modifier on our construction costs. But then you find an area where that house sold for $ a square, so then you would put a market adjustment on that building. So, again, we very much localize not only to our current building costs, but our current market, and that's studied in each neighborhood. So that's 41 1 essentially how we develop our improvement value. Q. When you say "per square," do you mean per 3 square foot? 4 A. Per square foot, yes. I apologize. Q. Does the Bonner County Assessor's Office 6 have software that you use to process that information? A. We have two systems, our CAMA system, which is Computer Aided Mass Appraisal, that's called ProVAL, and then we have a database system, which is the AS/400. Would you describe ProVAL for the Court. Absolutely. So ProVAL is our CAMA system, meaning it maintains all of our property data. So within that, each parcel record contains photos, it contains property attributes, meaning size of parcel, grade, it contains all the information about all the buildings, so grade, ages, sizes, values. So all of the parcel data is maintained there. But also in the back end of that system are all of our valuation tables. So we build and develop depreciation tables, our market adjustment tables, our land scales, all of those things are maintained in that CAMA system. Does that include the Marshall & Swift estimator data that you testified to? Q. 1 A Q. 1 A. It does. Q. Does it also include the local adjustments 3 you testified to? 4 A. Q. Are Marshall & Swift cost estimators one 6 particularly relied upon in the field of real estate appraisal? A. It is. It is a very widely used cost table. There are several costing tables available, but it is a very widely used one. To your knowledge, is ProVAL approved for use by county assessors in the state of Idaho? Well, ProVAL is provided and supported by the State Tax Commission, so, yes, it is widely used. And how is the validity of those values that are derived through the use of ProVAL tested? So as I mentioned before about the ratio studies, the State actually comes in and checks our ratios multiple times a year. We also check the validity ourselves, doing our own regression analysis, doing our own ratio studies, and you can also test the validity by looking at your values compared to new sales. And so if your current assessed value is lining up with your sales, then that is another validity test. Are adjustments to ProVAL made based on 43 1 results of those studies? A. Yes, they are. 3 Q. How often are they made? 4 A. Well, the State finalizes our ratio study once a year, but continually throughout the year we are 6 making adjustments and developing our values. Q. And what types of adjustments are made? A. As a result of a ratio study, or in general? Let's start with the more specific question, as a result of a ratio study. So oftentimes what we find, because our county tends to be conservative in our assessed values, is the State comes back and tells us our assessments are too low. So what we do at that point, they look at not only our assessments in total, they break them down by category, they break them down by neighborhood, and so we may have to go look at a specific neighborhood or a specific category of properties, and we reevaluate. And oftentimes, as I said, the result is to increase assessments because we're too low. When was the last time waterfront properties on Priest Lake were re-valued? We re-value them every single year. They were physically inspected -- the east side of the lake 44 Q. 1 A. 1 Q. 1 A Q. Q. 1 A Q. 3 4 A.

21 1 was physically inspected in 0, the west side of the lake was Q. When is the next full re-valuation due on 4 the east side of the lake? A. So the east side of the lake will be 6 physically inspected next year. Q. And how have assessed values on the east side of the lake been verified in the interim between inspections? So we look at a sales study every single year, and so we get the current year sales, check them against our assessed values, again, run regression, we run ratio studies and see how our assessment levels fit compared to those sales, and we make adjustments yearly, as necessary. If I could have the clerk hand you Exhibit K, please. Go ahead and review that, and let me know when you're ready. What information is shown on the first two pages of this exhibit? So the first two pages are a printout sheet from our ProVAL CAMA system. The front page shows 4 1 ownership information, addresses, parcel data in general, what taxing districts they lie on. In the 3 middle of the page, it does show valuation history. 4 The lower portion of the front page shows land detail, meaning how much frontage, what land grade they are, 6 the value of that frontage. There are also memos regarding that parcel. Oh, you said just front page, right? Q. Second page, also. So the second page, this is improvement details. So the center of the page is a sketch of the dwelling; the right-hand picture, the photo of the dwelling; down below are all of the structures on this property with their associated grade measurements, ages, and values. And is the improvement data -- does the improvement data on this sheet reflect the result of the process you testified to earlier? It does. Is the total market value on the property indicated on that exhibit? It is on the front page, right under the heading "Residential," where it says "Valuation Record." Can you go ahead and explain that table. 46 A. 1 1 Q. 1 1 A. 1 Q. 0 1 A. Q. 3 4 A. A. 1 1 Q A. 0 Q. 1 A. 3 4 Q. 1 A. The valuation record table? Q. Yeah. 3 A. It's a breakdown of the land total and the 4 building total within a total assessment, year by year. Q. Then let's go to the third page of 6 the exhibit, and just describe what that is. A. So this is just a map showing the location of this parcel, where it sits on Priest Lake. Q. And then the next page? So the next page are just some subject photos showing -- looks like a boat house, a boat slip, a garage, and the dwelling. And then we'll skip the next page for the moment and go to the last page. Can you describe that. Yeah, this last page shows a picture of the boathouse and a portion of the shoreline and is also providing the plat. And in looking at the plat, what attributes of the shoreline are shown there? Can you clarify your question? I'll strike that last question. I'll ask it a different way. Are the shoreline measurements included on that plat excerpt? Yes, the high water mark is shown. 4 1 Q. Is there any other indicator of what -- 3 A. There is the pin to pin measurement, yes. 4 Q. Going to the second to last page of the exhibit, can you describe what that is. 6 A. Yes, this is an older version of our sales sheet that we used to hand out to property owners. So essentially, this is for John and Nancy Davis. The first section there shows the subject property, their total land value, their site improvement value, their frontage, and what dollar per front their property is valued at -- front foot, I apologize -- and then below that in that grid are sales that we did use to set that valuation. So there's eight sales in that neighborhood. It shows the dates that they sold, the sale price, the frontage, the dollar per front foot, and then the grade of the lots. And what's the range of the grades of these lots? On this particular spreadsheet, they go from fair to good. What was the rating of the subject parcel? The Davis parcel is rated a fair. So how does the front footage 4 A. 1 Q. 1 A. 1 1 Q. 1 0 A. 1 Q. 3 4 A Q. 0 1 A. 3 Q. 4 A. Q.

22 1 compare to the front footage of the comparable sales? A. So it's distorted because the front footage 3 on this parcel, when this sheet was printed in 0, 4 reflected feet. Q. Just another reminder to slow down a 6 little. A. Of course. So since that time, we have adjusted this parcel to feet to reflect those variations in the rock outcroppings and things that we do not believe add value to this parcel. So that dollar per front would be slightly higher. But the two sales that we had of that same land grade one was at $3, per front foot, and the other was at, per front foot. And when you have one value higher and one value lower than the subject, what's that called? What term is used to describe when you have a comparable that's higher priced than the subject and one lower priced than the subject? I'm not sure. Is that called bracketing? Are you familiar with that term? Well, I recognize the methodology. We don't use the term "bracketing." And how does the front footage of 4 1 the subject otherwise compare to the front footage -- price previous, I should say, compared to the price per 3 front foot of the other comparables? 4 A. The rest of the comparables, the average and good lots, the subject is well underneath what the 6 value of those sales were. Q. And why is that? A. We believe it's attributed to the success of our land matrix. So correlating values to grade, you can see the average lot sold for higher than the fair and the good lots, some sold for slightly higher than the average, some slightly lower. But, again, the average and good lots are generally higher quality, better beachfront, less slope. So more desirable attributes equate to a higher dollar per front foot. Is the frontage affected by the high amount of front footage of the subject compared to the comparables? Absolutely. So generally, the smaller lots, you see a higher dollar per front. There's economies of scale and the theory of diminishing returns, so at some point, instead of adding value, the excess starts to decrease value, and so the more frontage you have, the less dollar per front it is valued at Q A. 1 Q. 3 A. 4 Q. 1 1 Q A Q. When you select sales as comparable sales, do you consider proximity? 3 A. Absolutely. That's the primary driver when 4 selecting your comps is location. THE COURT: Hold on, both of you. Tempo. 6 And also tempo in question and answer, so pause in between. MR. BRADEN: Thank you, Your Honor. THE COURT: Thank you. BY MR. BRADEN: How close are the comparable sales to the subject property geographically? In this case, we tried to keep the sales in just a few-mile range. Is that the case with respect to the Davis property versus the comparables? It is, yes. The subject property is in Clambake, which is in a point in between Cavanaugh and Coolin. Our comps all appear to be in the Coolin or Cavanaugh Bay area. With respect to the measurement of the shoreline, has the Idaho State Tax Commission stated a preference? The Tax Commission directly has not, but our consulting appraiser, who works for the Tax 1 1 Commission, has, and also the Board of Tax Appeals has. Q. During your testimony earlier, there 3 was a suggestion that parcels are taxed based on pin to 4 pin or meander line. Is that correct? A. They're taxed on their market value. 6 Q. How is the -- how does the shoreline measurement affect that? A. Well, market value of a property actually wouldn't change based on what type of measurement you use, so just, hypothetically, if you have a lot that's worth $0,000, regardless of how you choose to measure that lot, it's worth $0,000. So method of measurement is simply one way of finding value, which is our goal. When you're comparing parcels, are you able to make adjustments to that measurement so you can compare them on a like to like basis? We are. So essentially, as I stated before, when we did our study with 33 parcels, the overwhelming majority of those parcels were valued on meander line. So there's not the bias of using a meander line measurement or a pin to pin measurement and applying it apples to oranges. We used a vast majority of meander measurement to apply to parcels measured on the meander line. Q. 1 A. 1 Q. 1 A Q. 3 4 A. 1 1 Q. 1 1 A

23 1 Q. Were any of your comparable sales based on pin to pin? 3 A. Yes, I believe three. 4 Q. How did you adjust that? A. So we looked at shoreline to see if there 6 is any negligible difference in the meander versus pin to pin. Many of the pin to pin parcels are the old plats. They're 0-foot lots. In general, they're pretty darn close to 0 feet when you look at the shoreline. So we tried to see if they're -- a measurement from our cartographer would show that that pin to pin is drastically different. But, again, that was only three out of our sample size, so less than percent of our sales were on pin to pin. You mentioned earlier that you have received some bank appraisals, fee appraisals made on behalf of banks. We have. Did any of them include waterfront parcels? They have. Did they measure the shoreline? We actually have found Hall-Widdoss, which is a company that provided the appraisals for the auction, some of them have used meander lines. Miss Cheryl Reeves, who works for Columbia Valuation, has 1 1 Q. 1 1 A. 1 Q. 0 A. 1 Q. A provided appraisals that show a shoreline. Mr. Morse has provided an appraisal for another tax appeal for 3 another property owner on Priest Lake, and some of his 4 comps are measured on shoreline, and his subject for that appraisal was measured using our shoreline 6 measurement. Q. You mentioned when you were going over the Davis valuation earlier that some of the historical records were not reflected on the ProVAL sheet. A. Correct. Q. But do you keep them in the office? 1 A. We do. At this point, we have an archive where we keep our old paper records. We keep memos, we keep photos. Those are all kept in an archive. 1 Q. And are they referred to in valuing those parcels? Do you go back and refer to them? 1 A. Occasionally we do. 1 Q. If I could have the clerk provide you with 1 Exhibit KK. 0 Are you ready? 1 A. I don't have it yet. Q. 3 A. 4 Q. Go ahead and review that, and let me know when you're ready. 4 1 A. Q. What's this document? 3 A. This is our Assessor's Waterfront 4 Measurement Policy. Q. And what does that policy state? 6 A. It states that "waterfront frontage shall be calculated and valued using the high water actual shoreline, unless a recorded survey indicates a differing measurement. In the instance of a recorded survey indicating both pin to pin and shoreline measurement, the shoreline measurement shall be used." 1 Q. And you can give that back to the clerk. Going back to the State auction appraisals, 1 what interests in the property did those appraisers appraise? 1 A. The most current Hall-Widdoss appraisals 1 appraised the land as if vacant, and then they 1 appraised the structure separately. 0 Q. So they didn't value just the land. 1 A. No. Q. Did you review any of the value conclusions 3 arrived at in those appraisals? 4 A. Almost all of them, yes. In general, how did the land values compare Q. 1 with the assessed values of those properties? A. In most instances, the assessed land value 3 was less than our assessed. 4 Q. In general, how did the values of improvements compare with your assessed values? 6 THE COURT: Hold on a minute. I want you to come back to that question. I'm not sure I understood the last question and answer, and I just want to go back to it. And again, attorneys, object if you don't like my question. "In general, how did the land value compare with the assessed values of those properties?" And the answer that was written down, "In most instances, the assessed land value was less than our assessed." THE WITNESS: If I could correct the statement, the appraised land value was, in most cases, less than our assessed land value. THE COURT: MR. BRADEN: Yeah, that does clarify that answer. BY MR. BRADEN: In general, how did the values of the improvements compare with the assessed values of those improvements? Q. 4

24 1 A. In most cases, the improvements were drastically more than our assessed value. Sometimes 3 two, three, four times what our assessed values were. 4 Q. In general, how did the total market value of those parcels compare with your assessed values of 6 those properties? A. In most cases, the total appraised value is actually more than our total assessed value. We did an initial study after the first auction, and I believe 4 percent of the time, the total auction appraised value was higher than our total assessed value. 1 Q. How did you receive the data regarding the auction sales? A. As I stated, I attended the first auction. 1 We meet yearly with IDL. They come and do an evaluation with us. They update us on the auction 1 process, ask us about any issues that we're having. 1 We also get copies of all the appraisals. 1 We get auction results from IDL and from Corbett 0 Bottles, who is the auction company. So we are quite 1 involved in the auction process. Q. Did you review the comparable sales used in 3 the State appraisals? 4 A. I did. Q. How old were they? 1 A. Some of them, back to 001, with inconsistent time adjustments, inconsistent site 3 adjustments, no location adjustments. They felt the 4 lake was a singular market, which we were criticized extremely heavily in 01 by not only our 6 commissioners, but by the State Tax Commission and the State Board of Tax Appeals for considering Priest Lake as a singular market, when, in fact, it is four markets now. Q. And there was discussion earlier about market value for taxation purposes. Wouldn't that 1 be -- couldn't that be characterized simply as a simple disagreement on the allocation of value between land and improvements? 1 A. Absolutely. Again, the goal being defined market value, which is the most probable price that 1 property would sell for, the total value is more 1 important than how you divvy up value between the 1 parts. 0 Q. If I could have the clerk hand you Exhibit 1 FF. Can you review that document and let me 3 know when you're ready. 4 A. Q. What is that document? 1 A. It appears to be auction results. Q. For what years? 3 A. There's auction results for the 4 August 0, the August 01, the June 0, the unleased September 0, the 01, August, and that 6 appears to be it. Q. How did you receive that? A. These are actually directly from the Idaho Department of Lands website, so you can get them directly from their website. How did you use this data in valuing waterfront properties on Priest Lake? Ultimately, we did not. So we essentially look at this data, again looking at the final bid price, looking at the frontage. We look at the site rating. Oftentimes, fee appraisers have information that we are not able to obtain. We are not able to do interior inspections, so we compared our structures to see if our attributes were similar. We compared land attributes, because, again, a fee appraiser oftentimes has hours or even days to look at a property where we have approximately 1 to 0 minutes to look at a property. So we look at all those things to verify that our information is accurate. But as far as the sale prices, we did not 1 ultimately use them, because we don't feel they are valid transactions, and we don't feel they reflect the 3 market at Priest Lake. 4 Q. Turning to the fifth page of the exhibit... 6 A. Q....what information is on that particular page? A. So it shows addresses, subdivision name, lot and block numbers. Back up. Which auction? Oh, I apologize. This is the 0 unleased auction. How many properties were auctioned? Four. Did they all sell? It appears they did. What price did they sell for? The first lot for,000; the second lot for,000; the third lot for 3,604; and the fourth lot for 4,000. Were any of those sale prices above the appraised land value? No. And let's go to the last page of 60 Q. 1 A Q. 1 A. Q. 1 A. Q. 1 A. 1 Q. 1 A. 0 1 Q. 3 4 A. Q.

25 1 that exhibit. What does the table in the middle of the page concern? 3 A. I believe these are... 4 If you're referring to the four that are separated, I believe those are for unleased auction 6 sales. Q. That is the table I was referencing. A. Q. Did any of these parcels not sell? A. It appears that two of them did not. Q. What did the two that did sell sell for 1 price-wise? A. $3,604 for the first one; $34,604 for the second one. 1 Q. Were any of those sale prices above the appraised value? 1 A. It doesn't appear so. 1 Q. If I could have the clerk hand you Exhibit 1 II. 0 And let me know when you're ready. 1 A. I'm ready. Q. What's this document? 3 A. This document was provided to us during a 4 BOE hearing, and it was written by Mr. Alway (phonetic) and presented in defense of his appeal. 1 Q. 61 What was the nature of the comments on this page? 3 A. So the nature of this was the condition of 4 the sale between him and the State. So he makes a statement in this letter, "In this case, while the 6 State of Idaho was a willing seller, we were anything but willing buyers." So it talks about motivation. Again, typical transactions, people don't feel like they're forced to buy their property. They have free will to walk away and make an offer on another property, where 1 in this case, the leaseholders are extremely motivated to buy the land underneath their own homes. They're not out shopping, not out bidding on any other lot, 1 they're there strictly to buy their own property. Q. Are there any handwritten markings on this 1 document? 1 A. There is on the very bottom. I did write 1 the parcel number and the name, so we could attribute 0 it to their file. 1 Q. Have you personally spoken to anyone else regarding the circumstances surrounding the auction 3 sales? 4 A. We've spoken to quite a few property owners. Not myself, but members of our office spoke to 6 1 potential buyers interested in the auction process. Yeah, we've spoken to quite a few people. 3 Q. And you testified earlier regarding the 4 auctions of unleased land. During the period when these unleased land auctions occurred, were there other 6 unimproved lots available for sale on Priest Lake, to your knowledge? A. There are, yes. Q. Did the desirability of those lots make them more likely to be sold than the unleased lots? A. It could be a factor, yes. 1 Q. How about location? A. Location is a driving factor, yes. Q. What about site improvements? 1 A. Q. Amenities? 1 A. 1 Q. And access? 1 A. 0 Q. If an unleased lot went unsold at auction, 1 would you consider reducing its market value for assessment purposes on that basis? 3 A. The unleased lot that didn't sell? 4 Q. A. We wouldn't be assessing it. It would 63 1 still be State owned. Q. I see. 3 If I could have the clerk hand you Exhibit 4 LL, please. Actually, JJ and LL. 6 Earlier you testified to a waterfront parcel study that you had done in -- I believe it was in 01 for the 0 -- A. Correct. Q. -- assessments, and moving forward, obviously. 1 And if I could have you look at Exhibit JJ, and let me know when you're ready. A. Sure. 1 Q. What's this document? A. So this is our very basic land matrix that 1 we developed in our sales study in 01 for the 0 1 assessment year. 1 Q. And what information is contained in that 0 document? 1 A. So it's a guideline, essentially, to help us consistently grade waterfront lots. This is very 3 similar to a matrix that Kootenai County uses, where 4 you attribute a point valuation to different characteristics of that lot, and that correlates to a 64

26 1 land grade. Essentially, this helps us be consistent, so any appraiser could go to a lot and grade it 3 consistently, and it helps us stratify the properties. 4 Q. And what was the significance of having Kootenai County assist you with this effort? 6 A. So the significance being that Mike McDowell is a very well established assessor. They have quite a few waterfront properties. They have been using a very similar matrix for years and years and years and have proven it to be successful. So to have their assistance in what kind of things to look for, how to develop this matrix, how to build our scales based on that was hugely beneficial, rather than us just trying to build it from nothing ourselves. Can you describe the rating system depicted in that exhibit. Absolutely. So, again, being a mass appraisal rather than a fee appraisal, we have very limited time and scope when we're looking at a property, and so we have to figure out what are the most important attributes to a property that contribute value or may take away value. And so beach type and topography when you're looking at waterfront property seemed to be the driving factors in the marketplace alongside location, obviously. 6 1 So when we're looking at beach type, obviously, sandy beaches are prime, so they have the 3 highest ratings, where if you go down to the ratings of 4 and 1, you're looking at rocky, brushy beaches, or dropoff beaches where the beach doesn't even exist. 6 You fall off your lot into the lake, essentially. The second is topography. Obviously, level lots are more desirable. They're easier to build on, less expensive to build on, so they tend to be more desirable and bring a higher price, where a steep lot is going to get a lower rating because of the opposite. They tend to be more expensive to build, they're difficult to build, they're difficult to access your beach when you have 300 stairs from your house down to the water, so they tend to bring a lower price. So, again, totaling those points gets you to a waterfront grade of anywhere from fair to good. Now, if I could have you look at Exhibit LL, and let me know when you're ready. Looking at the first page, can you describe what's in this document. Yeah. So this is some of the supporting documentation that we used when we developed our new land valuation for 0. This shows 01 land value, Q. 1 A Q. 1 0 A. 1 Q. 3 A. 4 1 how we adjusted to 0, and then we used it again when developing 01 values. 3 Q. And does that correlate with the 4 information in Exhibit JJ? A. It does. So we used the matrix in Exhibit 6 JJ to create the site ratings, which when you look at each of these charts, you see a poor, fair, average, good. Those are correlated to the site ratings of the lot. And where did you get the dollar amount per front foot? They're derived from sales. Which sales? So, again, the five-year study that we did in 01, we pulled five years worth of previous sales, time trended them forward to make them relevant to that current year, and then broke them down by size. And so you can't just take a single-sized lot, divide that by the frontage, and apply that across the board. The market naturally creates break points. So a 0-foot lot is worth quite a bit more than a 0-foot lot, and a 0-foot lot is worth more than a -lot, so you have to build into that valuation different break points. You can see on our chart, we broke feet, 0 feet, 0 feet. So there's break points built 6 1 within it, so you're not trying to compare 0-foot lots to 00-foot lots, you're just comparing apples to 3 apples. 4 Q. When you say "worth more," do you mean worth more per front foot? 6 A. I apologize. I was trying to clarify that. The larger lots are worth more total because you have more frontage, but the dollar per front foot is less. Q. Were those sales limited to the 33 sales you discussed earlier? They are. Can you turn to the next page, please. And what is that? This is a map showing what we call Neighborhood 33, which is the northeast part of Priest Lake. Could you just generally describe the extent of that neighborhood geographically. Yeah. So this neighborhood starts north of Cavanaugh Bay and goes all the way up to Sandpiper. And when you say "Sandpiper," is that at the mouth of the -- It is all the way at the north end of the 6 Q. 1 A. Q. A A. 1 Q. A. 1 Q. A Q. 0 1 A. 3 Q. 4 A.

27 1 lake, correct. Q. And which of the subject -- which of 3 the subject parcels would fall within the northeast 4 neighborhood? A. Of the properties that are appealing? 6 Q. A. Without the list, I'm not sure. We do have some, I believe, in the lower quadrant, but I believe the majority are in this neighborhood. Would that include the ones on Pinto Point? Would it include the ones on Cape Horn? What about the ones in the vicinity of Eightmile Island? If you could move on to the next page and describe what that is. This is the exact same analysis, but for the southeast portion of Priest Lake, which we call Neighborhood So, again, you have your land ratings, which were developed with our matrix, and then you have our break points, ranging from to 0 feet. You can see how the valuation changed from `1 to ` to `1. And that's broken down in the chart below, 6 1 where you can actually see from 01 to `, we reduced land values in average and fair, and then in 0 to 3 01, there was a modest increase of percent in good 4 and average, and fair we see no increase. Q. Was it prepared in a manner consistent with 6 the preparation of the first table? A. It was. Q. Turn to the next page. A. And describe what that is. So this is just a map showing the parcels in Neighborhood 3306, which is the southeastern portion of Priest Lake. And are there parcels that are the subject of this action that are located in this neighborhood? Yes, I believe so. Where in general are they located? So this neighborhood is the Cavanaugh Bay area, the Clambake area, all the way down to the Warren Beach area. And that's near Coolin? It is the very bottom of the lake, yes. And just to question generally for all these maps in this exhibit, you see the squiggly line on the left side with the oval with the number 0 Q. A. 1 Q. A. Q. 1 A. 1 Q. 1 1 A Q. A. 1 Q. 1 A. 1 Q. 1 A Q. A. 3 Q. 4 1 on it? A. I do. 3 Q. What's that? 4 A. That's Highway. Q. And the next page, can you describe 6 what that is. A. Yes, the next page is the exact same scale development for 3406, which is the southwestern portion of Priest Lake. So again you see valuations in 01, `, and `1, dollar per frontage for poor, fair, average, and good, and then valuation changes from `1 to ` and from ` to `1. And then the next page? The next page is a map showing 3406 on Priest Lake. Are any of the parcels at issue in this appeal located in this area? No. And the next page? The next page is the exact same matrix for 34, which is the northwest portion of Priest Lake. And then the final page of that exhibit? It is a map reflecting that area, 34. Where in general are these sales located? So these sales include up on the opposite 1 1 side of the thoroughfare from Sandpiper, the Beaver Creek area. Also, I believe that's Kalispell Bay 3 there. 4 Q. And the ones in the middle there, is that Granite Creek? 6 A. Q. And were the last two tables prepared consistently with the way you've described the preparation of the first table? If I could have the clerk hand you Exhibit MM, Mike, Mike. Since the Board of Equalization hearings in June and July of 01, have you obtained any information regarding -- new information regarding sales of waterfront properties on Priest Lake? Yes, we have received multiple non-auction sales, and then this packet actually displays five sales that are previous leaseholders that purchased their lot at auction and then after the fact listed them for sale, and they have since sold. How did you obtain that information? Most often from the MLS service, but we also, again, receive information from buyers and sellers, from deed transfers, from appraisals, but 1 Q. A. 1 Q. 1 1 A. 1 Q. 0 A. 1 Q. 3 A. 4 Q. A. A. Q A Q. 3 A. 4

28 1 primarily, these were all MLS. Q. Did you get the appraised value of each of 3 those lots for the auction? 4 A. We did, yes. Q. And those were also performed by 6 Hall-Widdoss? A. Hall-Widdoss, yes. Q. And did that include the value of the land and improvements? Correct. And did you obtain the auction sale price for each of those lots? We did. How did the appraised value for purpose of the land sales auction compare with the subsequent sales price? What we found in all of these sales, the total auction price on I believe all but one of them was less than what these parcels sold for. How did the assessed value compare with the subsequent sales price? Our assessments in I believe all but one were lower than the sale price. Now, if you look at the first page of this exhibit, could you describe that sale. 3 1 A. Yes, this is a sale of 6 Hess Point Road in Coolin. This parcel was sold in the 0 auction to 3 the lessee for $63,000. Their total auction appraised 4 value was $0,000. Our assessed value at the time that this parcel sold was $63,000, 63,0. This lot 6 sold for $,000, so $,000 over what the auction total was and what our county assessed value was, which pretty credibly disproved that we're overassessing these lots. How did you obtain the sale price on this sale? The sales prices are provided to us from the MLS service. Second page. Can you describe that sale. This parcel is West Cavanaugh Bay Road in Coolin. This was another auction lot. It sold in 0 to the leaseholder for $6,000. We had the parcel assessed at the time of the sale for 1,466. That parcel sold for $0,000, again over what we were assessing that parcel. And then the next one? This parcel is 63 West Cavanaugh Bay Road in Coolin. It sold in the 0 auction for $6,000 to the leaseholder. We have that property assessed at the 4 A. Q. 1 A. Q. 1 1 A Q. 1 A. 3 4 Q. Q. 1 A. Q. 1 A Q. 3 A. 4 1 time of sale at $1,,0. It sold for $1. million in August of 0, so a little over $00,000 over what 3 our assessed value is. 4 Q. And the next page? A. The next is 3 Woody's Point Road in 6 Coolin. The parcel sold to the leaseholder in the auction of 0 for $40,000. At the time of the sale, our assessed value on that property was $1,4,33. That property sold for $1. million, so almost exactly what our assessed value is. And the final page? So this page is a sale that we spoke about earlier, Mr. Alway (phonetic), who purchased his lot at auction in 0 and has since subdivided his lot into two lots. He sold the lot with his house on it. He has not disclosed his sale price. Idaho unfortunately is a nondisclosure state. We are waiting, trying to get that sale price. That is a 01 sale, so we will hopefully be able to use it for 01. We do know that he had it listed for $6,000, which again was for half of his lot. At the time of sale, he bought his entire lot for $44,000. We had his total lot assessed at $631,0, so again, he is selling half of his lot for more than we have his total lot assessed. And what would you use a listing for where 1 the sale was after the date of assessment? A. So listings can't be used to set your 3 valuation, but you can use it to validate your study. 4 So when we set our assessed values, we look at current listings to see if we're in the ballpark. Generally, 6 if your assessed value is higher than your listing, you may need to reevaluate your numbers, but in this case again, our total assessed value is less than what he is listing at least half of his property for, so we are confident we're not over-assessing that property, by any means. Based on your education and experience in valuing real property for assessment purposes, did you find the valuation of the properties at issue in this case to be true and correct according to the rules set forth in the Idaho Constitution, Idaho Code, and Idaho Administrative Code? Did you find the valuations of the subject properties to be true and correct according to the policies of the State Tax Commission? Did you find the valuation of the subject properties to be true and correct according to the policies of the Bonner County Assessor's Office? 6 Q. 1 A Q. 1 Q A. 1 Q. 0 1 A. 3 Q. 4

29 1 A. Q. Is it your opinion that the values depicted 3 in the ProVAL sheets contained in Exhibits B through DD 4 and as summarized in Exhibit 33 are, in fact, the market values of those parcels for assessment purposes 6 as of the date of assessment? A. Q. And that would be January 1st, 0 with respect to Parker? And January 1st, 01 with respect to the rest? MR. BRADEN: Your Honor, at this point I think I'm not quite done, I don't have much more examination left, but I think this is probably a good stopping point for a lunch break. THE COURT: Sure. All right. Let's go ahead and be on break until 1 o'clock. Is that enough time, counsel? MR. MURPHEY: That's fine with me, Your Honor. MR. ELSAESSER: Can we have till 1:1, Your Honor, just getting across town and back? THE COURT: Absolutely. Let's come back at 1 1:1, and we'll be ready to pick up again. (Recess.) 3 THE COURT: Mr. Braden, when she is 4 settled, you may resume. MR. BRADEN: Thank you, Your Honor. 6 Q. BY MR. BRADEN: Miss Berscheid, have you had occasion to review Exhibits B through DD? A. I have. Q. Were the materials in those exhibits prepared in a manner consistent with those to which you testified with respect to Exhibit K? Is the information contained in those exhibits consistent with information to which you testified with respect to Exhibit K? And at this time I'll need you to get Exhibit 3. I think it's in the boxes to your right. What is that document? These are the transcripts of some Board of Equalization hearings held in June and July of 01. Could I have you turn to page 1 of that document. A. Q. 1 A A. Q. 1 A. 1 Q A. 1 Q. A. 3 4 Q. 1 A. Exhibit page 1, or actual page 1? Q. Actual page 1, yeah. 3 A. 4 Q. And as you kind of alluded to with that comment, there are four sheets per page, and each one 6 is individually numbered. On sheet, in the lower left corner of that page, what does that indicate? A. It is the Board of Equalization hearing for John and Marsha Christenson on June th, 01. Now, if you could turn to the next page, page of the exhibit. In the lower left corner, the sheet marked 3, could you read lines through, please. There's a typo here, it says "BAFO," but I'm assuming they mean VAFO, "Buyers do have a compulsion to buy. They are compelled to purchase the lot because they have a financial investment in improvements and an emotional investment in the family's lake place. The compulsion to buy influences the lessee to purchase the land at an appraised value the lessee may believe exceeds market value." Thank you. You can stop there. Now can you go to page of the exhibit. 1 Q. And on the sheet marked number 3 in the lower right corner of the page, what does that signify? 3 A. The Board of Equalization hearing for 4 Robert Craven, July th, 01. Q. If you could turn to the next page, page 6 30, I believe, and sheet, in the lower left corner of that page, could you read lines through, please. A. This is a quote from Mr. Craven: "I'll tell you, like I said, this has been the third year in a row I have, I mean, overpaid for it because I was forced into it, honestly." Now, that's all I need for that exhibit. What do you look for when you review a fee appraisal? So we were taught when we review fee appraisals, the first thing that you look at is the purpose of the appraisal and their scope of work for the appraisal. Other things that you want to look at are the comparables. The quality of your appraisal is entirely in the comparables and what adjustments are made to that. So those are the primary factors we look at. 0 Q. 1 1 A Q. 4 A. 1 Q. 1 A. Q. 1 1 A

30 1 Q. Under what circumstances would you adjust the value of a property based on a fee appraisal? 3 A. As I mentioned before, occasionally fee 4 appraisers have information that we're unable to get regarding interior components of homes. For example, 6 fee appraisers are allowed inside the home. We are not. So we may fix the bedroom count, we may fix the bathroom count. Something like that would affect the value. Occasionally, a fee appraisal will turn in a sale that maybe we didn't get. Again, Idaho is nondisclosure, so sometimes we do get sales that maybe we didn't have before that when reevaluated may or may not change our value conclusion. Under what circumstances would an adjustment of the value of a property that was the subject of a fee appraisal not be warranted? After we review the fee appraisal and we feel the comps are either not comparable or they've made unreasonable adjustments to those comps, in that case, we would not follow their direction and we would not make adjustments. Have you reviewed any of the fee appraisals completed by Ed Morse for the properties at issue in this matter? 1 1 A. Yes, all of them. Q. And if you could get Exhibit 41, please. 3 A. 4 Q. And on page 1, could you just state what this is, what this document is. 6 A. This is the appraisal report for the Alice property. Q. Now could you turn to page 3 of the exhibit. That's page 30 of the report. And if you could direct your attention to the section entitled "Market Conditions" that starts on the bottom of that page and carries over to the next page. Have you previously read this analysis in this or any other of Mr. Morse's appraisals of the properties at issue in this action? I have. Do you agree with the statements made in this analysis? Well, they are somewhat contradictory in and of themselves. At one point, he says the market is flat, at another point, he says it decreases, and at another point he states that there is some measurable trend for price increase. So it's somewhat contradictory to what we have found, which in the last 1 1 Q. 1 1 A Q. 4 A. Q A. 1 Q. 1 0 A few years, the market as increased quite steadily in Priest Lake. 3 Q. Could you now please turn to page 3 of 4 that exhibit, which is page 36 of the report. A. 6 Q. And now I would direct your attention to the section entitled "Specific Requirements and Issues per ad Valorem Appraisal." A. Have you previously read that section? I have. Do you agree with the statements made in this analysis? First of all, what does that analysis discuss? The first paragraph, it's talking about extraction, which I do want to correct for the record. It is not the extraction method, it is actually the abstraction method. So that has been misquoted this whole time. But it talks about it being unreliable, that land sales should be used when available, that using an extraction is biased, and that they are not reliable as much as a direct sales comparison. In this analysis, Mr. Morse states at the 3 1 bottom of the first full paragraph that "In some jurisdictions, there is a bias to lower improvement 3 values and raise land values because the homeowners 4 exemptions do not exempt land value, only improvement values, and higher land values produce more tax 6 revenue." Is that true in Bonner County? A. It's actually not true in Idaho at all. A homeowner's exemption applies to your first acre of land and also to your home, so to make a statement that land does not get a homeowner's exemption is a false statement. Also, it's somewhat irrelevant, because none of the leaseholders, if any, very few are primary residents on Priest Lake, so they would not be getting a homeowner's exemption anyway. In your experience, when improvements are built on a previously unimproved parcel, does the total market value of the property increase only by the value of the improvements? It does not. So, again, the price of the whole is more, usually, than the sum of the parts. So there are intrinsic values that are not strictly in the lumber price or your roofing price. There is more to that. There's the market value that gets added to the property, not simply the cost to build those 4 Q. A. 1 Q. 1 A Q. 1 1 Q A

31 1 structures. Q. How did you arrive at that conclusion? 3 A. By studying sales. So, again, when you 4 extract building values and compare them to vacant land sales, you can see what the difference is in your 6 building values to land values and everything in between. Q. Are sales of unimproved land relevant to the valuation of improved properties? They are, yes. They help you set your base rate. Is the extraction method of allocating value -- abstraction method of allocating value to improve land more subjective than using land sales as the sole method of allocating value to improved land? It is. Why? Because the building values have to be accurate in order for you to extract an accurate value. If building values are accurate, would that be more objective, then? Would it be more objective? Would the abstraction be more objective the more accurate the data is regarding improvements? 1 Q. Have you reviewed the comparable sales catalog Mr. Morse used in his appraisals? 3 A. I have. 4 Q. Did the comparable sales catalog used in Mr. Morse's appraisals include any improved properties? 6 A. They do. Q. How many? A. I believe three. Q. How did he obtain the land values for those properties? By extracting an improvement value that I'm not sure how was calculated from the sale price. Please turn to page 1. Where is the sale located? This sale is actually located on Match Bay, which is in the outlet of Priest Lake. The outlet is on the southernmost portion. It is shallow, it is rocky, it is very seasonal. It's considered a backwater. It's not comparable to the main lake frontage. Access is very poor from the water. When they drain the lake, you oftentimes can't get into the outlet. So we would not consider this comparable to main lake frontage. How is the lake drained? 6 A. 1 Q. 1 A. 1 Q. 1 A. 1 0 Q. 1 A. 3 Q. 4 A. A. 1 Q. A. 1 Q. A Q. 1 A. The lake is drained through that outlet. Q. Is there a dam there? 3 A. There's essentially a small dam, yes. 4 Q. Are any of the properties at issue in this action on an outlet bay? 6 A. They are not. Q. Are any on the west side of Priest Lake? A. They are not. Q. Why is this significant? Again, back to the study we performed in 01 finding that the four sectors of Priest Lake are not only viewed economically very different, but the sales are very different. Again, the west side tends to sell higher, we feel, due to the amenities, the access, things of that nature. The east side sells very differently, oftentimes lower, because of the lack of access, the lack of amenities, things of that nature. Please turn to page 3. Let me know -- review it, and let me know when you're ready. Is all the information on that page correct? It is not. What is incorrect? 1 A. The frontage on this parcel is misrepresented. 3 Q. How is it misrepresented? 4 A. Mr. Morse has it listed as 6 front feet per the listing. We actually had our platting 6 department look at this parcel, and it actually has, I believe, 3 front feet, which would increase the dollar per front on this parcel. Q. And how did the platting department come up with the 3 front feet? Their job is to look at deed descriptions and parcel legal descriptions and interpret how those should be drawn, and there is question as to overlapping parcel lines, but there does indeed describe a parcel with -- I believe it is 3 front feet. Why is this discrepancy significant? It's significant because it changes drastically the dollar per front foot. When you're taking a sale price and dividing it by a smaller number, you get a higher dollar per front. And how does that affect the comparability of your sale? Essentially, it should, if used in analysis, increase your final result. A Q. 0 1 A. Q. 3 4 A. Q. A Q. 1 A Q. 3 4 A.

32 1 Q. Please turn to page 4. Review that and let me know when you're ready. 3 A. 4 Q. Is all of the information on that page correct? 6 A. I believe so. Q. Was this an improved property? A. Yes, it was. Q. Was the value of the improvements extracted from the sale price? Not that I can see in this analysis. Why would that be significant? If you're not extracting, it appears by this listing it was a 1-level cabin. If you're not reducing that value, then you're overvaluing the land. Please turn to page 6. And again, review that page and let me know when you're ready. What side of the lake is this on? It's on the west side. Are any of the parcels at issue in this action on the west side of the lake? They are not. How is that significant? Again, getting back to the neighborhood, 1 this neighborhood tends to sell quite a bit higher. As you can see, the dollar per front foot on this lot is 3 $,00. That's more reflective of lot values on that 4 side of the lake. Q. Please turn to page. 6 A. Q. And review it and let me know when you're ready. A. You are ready? What is significant about this sale? This sale we actually would not consider to be a valid transaction. It was never listed, it was not on the open market, it was, to our knowledge, a sale between neighbors. So without opportunity for competition, without time on the market, that would not be a valid transaction that we would be able to study. Was that, to your knowledge, ever reported to the Multiple Listing Service? Not to our knowledge. We never received this sale. So you answered that question, too. Please turn to page 1, and then review that and let me know when you're ready. 0 A. 1 Q. A. 1 Q. 1 1 A. 1 Q. 0 A. 1 Q. 3 A. 4 Q. A. Q. A. 1 Q. A Q. 0 1 A. 3 Q. 4 1 A. Q. Was this an improved property? 3 A. It was. 4 Q. And looking at the analysis, did they extract the value of the improvements from the sale 6 price? A. It doesn't appear so. Q. And finally page 0. A. And which side of the lake is this on? This is on the west side. Was this an improved property? It was. Did they allocate value to improvements and land? They did. And according to this page, are the improvements still there? It says the home was demolished by the buyer. When did the sales of Mr. Morse included in his comparable sales catalog occur? I think the earliest one, if I remember correctly... Let me look really quick. I believe it was 1 1 0, but let me double-check that. Yes, I believe 0 through 0. 3 Q. Do you know if he made any time adjustments 4 reflecting market trends since those sales occurred? A. The only time adjustments I recall were a 6 percent adjustment from sales from 0. Q. Should he have made other time adjustments concerning market trends since those sales occurred? A. In our opinion, absolutely. If you just simplistically apply a percent in 0, you should apply at least a percent to the earlier sales prior to that. To say that the market in Priest Lake has been flat, we have quite a few sales to contradict that. We have seen an increase not only in the number of sales on Priest Lake, but in the sale prices in Priest Lake. So to see double digit increase in market conditions in the county and to say Priest Lake has remained flat for the last seven years I think is pretty unrealistic. Were there other errors that you found in his comparable sales catalog? What were they? Two of the parcels have the wrong front footage reported, two of the parcels have the wrong Q. A. 1 Q. A. Q. 1 A. 1 Q. 1 1 A. 0 1 Q. 3 A Q. 1 A. 3 Q. 4 A.

33 1 sale price reported, and one of the parcels is not a sale at all, it was an offer that never closed. 3 Q. In the exhibits that are before the Court 4 now, did you correct some of those errors? A. I believe some of them, yes. 6 Q. How was he informed of those errors? A. Well, we had a State appeal for a different owner, a different case, and some of these comps were used. We did make note of that to Mr. Morse during that appraisal, that some of these comps were invalid or incorrect. Also during depositions we brought up some of these errors. MR. BRADEN: Nothing further, Your Honor. THE COURT: Thank you. Redirect examination? MISS ELSAESSER: Yes, Your Honor. REDIRECT EXAMINATION BY MISS ELSAESSER: Could you please go back to page 1 of Exhibit 41. Is this the same page you were reviewing? And you stated that it was an improved property and improvements were not taken out of the 3 1 price? A. It is an improved property, and in the 3 calculations at the bottom, there is no improvement 4 value extracted, correct. Q. Is that because that sale was actually just 6 for the land only? A. The sale is for the land only, and it is our understanding they had to pay for the improvements, also. Where is the error, then, in the number for the land? I'm unclear if the 44 included the 1,000 or if that was land only and then the improvements were paid on top of that. Well, if the sale is talking about the auction, it would be a separate purchase; correct? If you're purchasing the items from the State, you're paying one bill, and if you're purchasing another part from the previous lessee, that would be a different amount; correct? That I don't know. Well, you are saying it's an error in not reflecting the improvements; correct? I stated that in this sheet, it doesn't appear that an improvement value was extracted from the Q. 0 1 A. Q. 3 A. 4 Q. Q. 1 A. 1 Q A. Q. 3 4 A. 1 sale price. THE COURT: Will counsel come forward, 3 please. 4 (Discussion held off the record.) THE COURT: Miss Elsaesser, you may 6 continue. MISS ELSAESSER: Thank you, Your Honor. Q. BY MISS ELSAESSER: The stated price of 44 for auction sale, that's for land; correct? That's where I'm unclear. But you have all the records from the sales in your files; correct? So you'd be able to verify that the 44 is the land price. If I looked at it, yes. But you testified here today that it's unclear. I said what happened with the sale price is that it doesn't appear in the analysis that any improvement value was extracted from that total price. But this is for a land purchase; correct? That includes improvements. But an improvement... You're saying it's not clear. However, you 1 have the ability to look at it, and you also stated you do verify and look at the land sales; correct? 3 A. We do. 4 Q. So how difficult would it have been to check on your list to see if this sale was correctly 6 reported from the Department of Lands as it's compared to in the appraisal? A. Quite easily. Q. Did you? On this particular one? I did not personally. I believe our appraisal team in Area 3 probably did. MISS ELSAESSER: Could the witness, please have Defendant's Exhibit FF. BY MISS ELSAESSER: What is that before you? These are auction results. These pages are not numbered, but I believe it's page 4 of the exhibit. Would you please turn to that. Can you find the sale value for 4 East Lake Trout Lane. It's A. Q. 1 A. Q. 1 A. 1 Q. 1 1 A. 0 1 Q. 3 A. 4 Q. A. Q. 1 A. 1 Q. 1 1 A. 1 Q. 0 1 A. 3 Q. 4 A.

34 1 Q. Does that say "Land Value" above it? A. It does. 3 Q. Would that change your testimony that you 4 just made? A. Yeah, the testimony that I made was that it 6 did not appear there was an improvement value extracted from the calculations. Now, the statement that the 44 is for land only, that is correct. So if that is the direct correlation to the analysis down below, then it would be correct. Q. Well, the direction below does say on there 1 that the cabin was purchased for a separate amount; correct? A. It doesn't necessarily say "separate," it 1 says the buyer paid 1,000 for improvements. Q. Up above, where it says the lot was 1 appraised for A. Um-hmm. 1 Q. -- on the lot appraisals, are those just 0 speaking to land when the Department of Lands is 1 selling them? A. 3 Q. So was this really unclear? 4 A. As far as my statement? Q. 1 A. No, my statement was clearly the fact that there is no improvement value extracted from the sale 3 price. 4 Q. But it wouldn't have been -- it would be incorrect to extract 1,000 from that price, wouldn't 6 it? A. Correct. Q. So does that change your testimony? A. No, my testimony is still that there's no improvement value shown in this sales price extraction. Q. It just shows the land; correct? 1 A. Correct, which is what I said. Q. But why would they extract improvement value from that? 1 MR. BRADEN: Objection; asked and answered. THE COURT: Overruled. 1 THE WITNESS: They wouldn't if they were 1 paid for separately. 1 Q. BY MISS ELSAESSER: When you're assessing a 0 property, what years are sales allowed? 1 A. The year prior. So, for example, 01, you look at 0 sales. 3 Q. Can you look at other years? 4 A. If you don't have enough market data, you can look at prior years, but you have to time trend it 1 forward. Q. How old are the comparables used on the 3 parcels at issue? 4 A. On the subject parcel? Q. Of these. 6 A. The current valuations are based off of 01 sales. I understand we're at the issue of 01 assessments, which would have used 0 sales, and 01 in Mr. Parker's case. MISS ELSAESSER: So could the witness please have Defendant's Exhibit K. THE WITNESS: BY MISS ELSAESSER: Could you please flip to page number. This was the property of John and Nancy Davis. Correct. This is part of the assessor's packet that was provided at the Board of Equalization in 01? I would assume so, yes. What's the oldest sale on that list? 0. Were there any 0 sales? No. 1 Q. 1 A. Q. 1 1 A. 1 Q. 0 1 A. Q. 3 A. 4 Q. A. 1 Q. I have a few short questions, and I have three different defense exhibits. Could I have all of 3 them handed? 4 THE COURT: Certainly. MISS ELSAESSER: Could I have Defendant's 6 Exhibits II, JJ, and LL. Q. BY MISS ELSAESSER: I'll start with II, please. A. Q. What date is this letter? A. I believe it was turned in in their 01 1 BOE. Q. So not related to these appeals. A. It is not an appellant in this case, but it 1 is motive of the general property buyer. We've had testimony from this property buyer, as well as auction 1 purchases here with similar motives and similar 1 statements. So it attests to state of mind when buying 1 these properties. 0 Q. That's not the question I asked you. My 1 question was, is this related to this appeal? A. 3 Q. Is this person an appellant? 4 A. appellants. No, but he is in the same class as your 300

35 1 Q. Did this person appeal to District Court? A. No. 3 Q. Is there any date or time or reference to 4 this exhibit? A. It is part of the public record for his BOE 6 packet, but it was not Bates stamped, as he turned it in at the date of his appeal. Q. I mean on the face of this document. A. No, he did not date it. Could you please turn to JJ. Where would the rock piles that are used as jetties be reflected on this waterfront -- They would not. The composition of the beach is, viewing the parcel as a whole, if you have a small pile of rocks on your property, you're not going to consider that when you're looking at overall beach type. When you look at overall beach type, you look at the lot in general, not just a small pile of rocks to the side. So when you discuss that those were taken into consideration, where is that accounted for? That would be in the frontage measurement. On a rock jetty, when you determine if it has property value, do you determine if the rock jetty has a flat value or if the entire circumference would be a beneficial use? 3 A. It depends on the shape and the attributes 4 of that rock jetty. If it's a simple five-foot wide pile of rocks that juts out to the water, you have to 6 decide does it add utility as a water break, or is it just a pile of rocks. If it's just a pile of rocks, you would cut straight across it. As far as the jetty goes, you're not going to follow the full jetty all the way around the five feet. You do have to make adjustments for how much of that jetty is in that value and how much does it add. Can you please turn to LL. Is the first page titled "33 Northeast Priest Lake"? It is. On the land value change, on average, did it go down.6 percent? In 0, yes, it did. And then the next year, it went up 3 percent? It did. And that is the assessor's belief that that's how the market swung. 30 Q. A. 1 Q. A Q. 3 A. 4 Q. 1 Q. A. 1 Q. 1 A. 1 Q. 1 0 A. 1 Q. 3 A. 4 Q. 1 A. No, that's not our opinion of how the market swung. Our opinion was -- obviously, by these 3 numbers, the old scale we had built was inaccurate. So 4 in 0, you see quite a reduction in average, fair, and poor, but in the average category, I believe we 6 only had one or two sales that we were trying to use in that category, and then the following year we received quite a few average sales, which showed that that move was not the correct way to go. And you see that typically in market swings, depending on what sales you have. Maybe you went up or down and the next year proved out that either that was too much or not enough or the wrong direction. So we did bring it down substantially and then the next year found that was an incorrect move and brought it back up. So the market, in your opinion, has only gone up. In the Priest Lake area, yes. But your land values do not reflect that on this sheet. On this sheet you're seeing the difference in treating Priest Lake as a whole and not attributing value to the different land characteristics, to moving to 0 land values, which, as you can see, are massive reductions in the value after taking into account the different neighborhood and the different land 3 characteristics. That is not necessarily a market 4 swing. That is correcting our values. Q. You've stated the term "typical motivation" 6 throughout today. A. Correct. Q. What definition is that in? A. It is in the Encyclopedia of Real Estate Appraisal. So to clarify, not in the statute that we are talking about. No. When you discussed ratio studies, when you conduct a ratio study, do you include the auction sales? No, we do not. Does that create better looking ratio studies by not including those sales? "Better looking" meaning more accurate, yes. No, more likely to conform with your numbers. No, because the ratio studies would be worse adding in the auction value, because we feel that Q. 1 1 A. 0 Q. 1 A. 3 4 Q. 1 A. Q. 1 1 A. 1 Q. 1 0 A. 1 Q. 3 4 A.

36 1 they are undervalued compared to our assessed value, which would make our ratio lower, which would prompt us 3 to increase assessments. 4 Q. So by ignoring them, you get the response you want. 6 A. We do not ignore them. Q. Exclude them. A. We don't have a goal of getting to a number that we want. Our job is to find market value. There's no motivation in our office to reach a particular number. We are tasked to find market value. What would your explanation be for the vast difference in land and structure values that fee appraisers have versus what the assessors have? I can't explain why a fee appraiser would -- it's just a land-to-building ratio. I don't know. Could be comps they use, it could be their cost manuals, it could be adjustments made. All I can explain is our assessed value. MISS ELSAESSER: And I apologize, I do need Defendant's Exhibit NN, but I am done with those exhibits. THE WITNESS: BY MISS ELSAESSER: Would you turn to the third page A. Q. Is that 63 West Cavanaugh Bay? 3 A. It is. 4 Q. And your improvement value for that property is 4, A. At the time of sale, it was, yes. Q. And so the basis for this showing the undervalue, in your terms, of the auction? A. The point of this was -- the statement has been made multiple times that we are over-assessing these properties. The point in comparing the sale prices to our assessment is we are not over-assessing the properties. Your opinion may be we over-assess the land. Our job is to find market value, which is the value of the parcel in total, and our total assessed value is lower in every single case, except for one where we're right on from the sale price. And do you have any idea on the actual cost of this building or anything of that nature? No, we have not talked to the builder or contractor on this property. So if a building that costs.1 million to build, plus a land value of 600,000, is sold for 1., is that a loss? Market value is what someone is willing to Q. 1 A Q Q. 1 0 A. 1 Q. 3 4 A. 1 pay for it, not necessarily what it costs to build something. 3 Q. What someone is willing to pay for it, you 4 said? A. Correct. 6 MISS ELSAESSER: No further questions. THE COURT: Recross, Mr. Braden? MR. BRADEN: Briefly. RECROSS-EXAMINATION BY MR. BRADEN: Can you go back to Exhibit FF, please. Exhibit... Excuse me. I apologize. Not FF. If I can have just a second... Actually, I'd like Exhibit 41, please. THE COURT: So those are in the books; correct? MR. BRADEN: Correct. THE WITNESS: BY MR. BRADEN: If you could turn to page 4, please. Actually, if I could have you turn to page 1. I apologize for the error. Page A. Q. And that's the market analysis that was 3 touched on in both my and Miss Elsaesser's recent 4 examination. Does it indicate -- after the sale price of the land, does it indicate any other price that was 6 paid? A. Other than the percent fee? Q. The percent fee, that's what I was... Was that percent fee reflected in the tables and in Exhibit FF? You'll have to refresh me on FF. If I could have -- Is that the auction results? It is. No, that value is not in any of the auction results. The auction results reflect the winning bid. Now, if I could get Exhibit K, please. If you could turn to the fifth page of that exhibit. And you testified that you used comps from 0 to set 01 values; correct? Correct. 30 Q Q. 1 A. 3 Q. 4 A. 1 Q. A. Q. 1 A. 1 Q. 1 1 A. 0 Q. 1 A. 3 Q. 4 A.

37 1 Q. But you also testified that the comps -- that the comparable sales reflected on that sheet were 3 older than that. Just yes or no. 4 A. Q. Now I'll ask you the question. Why 6 did you use older comps on this one? A. In this case, we did not use these comps. Oftentimes the property owners want to see what sales were used to set their value. In this case, when you turn to the front page, you can see that, actually, their valuation did not change from `1 to `1, and so this one had a reduction due to us reducing the frontage, but it was not a market change, because we didn't have any sales. And so when they want proof of how we got to the value, well, we got to that initial value two years prior, using these sales, and so they weren't used to set the current market in that sense. They were used several years ago, and, in our opinion, that grade of land in that neighborhood had not fluctuated in the last two years. And that was part of the study you testified to earlier? Correct. And was there any need to time adjust these 30 1 to value the Davis parcel? A. No, we didn't believe so. 3 Q. Why was that? 4 A. Again, other sales that we had, not only in this land grade and other land grades, showed that our 6 values at the time were accurate, so we did not feel we needed to make a market adjustment. Q. And I'm finished with that exhibit. Could I have Exhibit JJ, please. Do you have Exhibit JJ? I do now. Thank you. What are the different beach types that are reflected there? There's sandy, pebbly or grassy, rocky, brushy, or nonexistent. So rocky is a beach type that you use in your assessments. It is. How would you -- when would you describe a parcel as being rocky? So when you look at the beachfront as a whole, most of it is rocky. If there's only a small, very usable portion of the beach or if there's no usable portion of beach, meaning sandy, flat, grassy, Q. 3 4 A. Q. A. 1 Q. 1 A. 1 Q. 1 1 A. 0 Q. 1 A in that instance, we would consider it rocky beach. Q. Could a beach that has rocky areas not be 3 classified as rocky? 4 A. Generally, we look at the primary frontage. So if a lot is primarily rocky but maybe as has a 6 - or 1-foot sandy beach, we would still consider it rocky primarily. Q. If I could have you look at Exhibit MM and turn to the third page of that exhibit when you receive it. And again, if you could turn to the third page. What's the address on there? 63 West Cavanaugh Bay Road, in Coolin. And was that the property that you discussed with Miss Elsaesser just a few minutes ago? It is. What was the total sale price? It sold for $1. million. And what was the auction value for the 0 auction sale? $1.6 million. What's the difference in value between 3 1 that? A. It was,000 for the structure, 6,000 3 for the land. 4 Q. What was the difference between the auction value and the sale price? 6 A. Oh, $00,000. Q. And if you add $00,000 to the land value, how much do you get? A.,000. Was your assessed land value greater or less than that? Less. MR. BRADEN: Nothing further, Your Honor. THE COURT: Any follow-up? MISS ELSAESSER: No, Your Honor. THE COURT: You may resume your seat. Thank you. More witnesses? MR. ELSAESSER: We have one more witness, and then we'll have rebuttal. As far as I know, I don't believe that the County has additional witnesses. MR. BRADEN: We don't. The defendant would rest. THE COURT: All right. MR. ELSAESSER: So I guess we have one. I 31 A. 1 Q. A. 1 Q. A. 1 Q. 1 1 A. 0 Q. 1 A. Q. 3 4 A. Q. Q. 1 A

38 1 know we've gone out of order, Your Honor, but we have one witness as part of our case. I don't know that it 3 really matters. 4 MR. BRADEN: It's fine with me. MR. ELSAESSER: 6 THE COURT: One more witness. MR. ELSAESSER: Yeah, and then rebuttal. THE COURT: And then rebuttal. MR. ELSAESSER: And so if we could do -- I'll do our one witness prior to rebuttal, if we could have a break after that. THE COURT: One witness, then a break, then rebuttal. MR. ELSAESSER: THE COURT: Very good. We can do that. MR. ELSAESSER: Call Denny Christenson. THE COURT: Mr. Christenson, if you'd come forward and be sworn, please. (Whereupon, JOHN D. CHRISTENSON, called as a witness on behalf of the Plaintiffs, was sworn and testified as follows:) THE COURT: Make yourself comfortable, Mr. Christenson. Don't be afraid of that microphone. THE WITNESS: Thank you. 3 1 THE COURT: Make sure you speak right into it. 3 And when he is settled, Mr. Elsaesser, you 4 may begin. DIRECT EXAMINATION 6 BY MR. ELSAESSER: Q. Mr. Christenson, would you state your full name and address for the record. A. John D. Christenson, I go by Denny, 1 West Falcon Avenue, Spokane, Washington. And are you one of the appellants in this case? And in addition to that... Well, first of all, did you -- prior to acquiring your property from the Department of Lands, did you -- prior to acquiring your property from the Department of Lands, were you a leaseholder? And how long were you a leaseholder? Since. And just for background, what is your -- what is or was your principal occupation? I'm an architect. And how long have you been an architect? Q. 1 A. Q A. 0 Q. 1 A. Q. 3 4 A. Q. 3 1 A. Since. I've been licensed since. Q. And are you still currently -- is that 3 still your current employment? 4 A. Yeah, I still poke around a little bit. Q. And is there an organization of 6 leaseholders that exists at Priest Lake to represent their interests? A. Q. And what's the name of that organization? The organization is now called Priest Lake Cabin Owners Association. That name changed last year. Previously, it was the Priest Lake State Lessees Association. And is that an organization that was organized for the benefit of the leaseholders and now, in many cases, owners with regard to the disposition and leasing of property from the State Department of Lands? And during the time period in which the State Department of Lands undertook to start selling on a voluntary basis the land underlying the cabins on the east side of Priest Lake... First of all, when did that process begin? The actual sales began in 0 with the A. 1 Q A. 0 Q A VAFO. The process began much earlier, in 0. Q. And were you an officer or director of the 3 organization and involved in understanding that process 4 on behalf of the association? A. From 0 through late 01, I was 6 the president of the Priest Lake State Lessees Association. Q. And so did you have an opportunity to observe the entire process of how the Department of Lands undertook to sell property to the point of the current process where a certain number of lots are auctioned every year? Yes, I was intimately involved in the process, working with the Department of Lands on the whole process from the beginning until current time. And you've heard a lot of discussion in this proceeding about the appraisals that formed the basis of the auction's minimum bid price for the State lots, you've heard that testimony, and you're familiar with how that works; correct? Of course, yes. And my first question is, how did the -- prior to lots actually being sold, what was the basis for the State setting a lease price? The State lease rates have been 4 percent 1 A. 1 Q A. Q. 3 4 A. 3

39 1 of the appraised value. They were then and they still are. 3 Q. And in order for the State to obtain that 4 appraised value, how does the State go about that? A. They contract with an appraiser to appraise 6 the lots. Q. And is that generally the same appraisal firms that are being used to appraise for the auctions? A. No. Well, excuse me. Prior to 0, I believe when Hall-Widdoss became employed or contracted with the State to do their appraisals, other appraisals -- another appraiser did the appraisals for the State. And was Hall-Widdoss engaged to appraise both the value -- for sale purposes, both the value of the lots and the value of the improvements on the lots? And were you involved on behalf of the association while that process was going forward? And was there -- on behalf of the various lot owners, was there a lot of discussion with the State Department of Lands about those appraisals and the conclusions that were reached? 31 1 A. Yes, there was a lot of discussion. Q. And was some of those concerns that those 3 appraisals were greater than what the owners felt was 4 fair value? A. Yes, I think the owners almost universally 6 felt that the State's appraisals for the purpose of the VAFO exceeded fair market value, based upon the lessees' experience with several prior appraisals. Q. And these were prior fee appraisals? And also prior sales in the Priest Lake area? According to the appraisers, yes. And so when the process began, are these sales voluntary? So describe how they are voluntary. Well, lessees have an opportunity to put their name in a queue in the hat, put their -- there was a lottery where lessees who were willing to enter -- or to consider being in a VAFO, they didn't have to commit to being in a VAFO, but just to be considered, they were offered the opportunity to put their -- to enter a lottery. So 6 put their -- made that determination Q A. 1 Q. 0 1 A. Q. 3 4 A. Q. 1 A. Q. 1 A. 1 Q. 1 A The State hired the Idaho Lottery Commission to pull the numbers up so everybody could 3 get a queue number for when they're able to enter the 4 VAFO. The one exception to this whole process was 6 a 0 VAFO, and I can explain that to you later, if you want, but, anyhow, up through last year, the people that participated in the VAFO were those who had a queue number and agreed to continue with the opportunity to be in the VAFO. They were not forced to be in the VAFO. If they wanted to, if they had a lease that was current beyond the date of the VAFO, they could continue to lease it and not enter the VAFO. And then if your number came up, what did the State do? What did the State do as far as marketing and promoting the sales of these properties? Well, once -- if your name came up, the State would notify you if your name came up and contact you and tell you the process. Then the State would appraise your lot and your improvements, and then you have a chance to continue in the VAFO or not once you learned the values of what you're talking about, how much you were going to have to pay. And if you chose to do that, then you would pay half the guaranteed price and $1,000 for the appraisal and agree then to 31 1 pay -- in 0, it was a 1 percent administration fee. From 0 and after that, I think it was a percent 3 administration fee. And then you would proceed into 4 the auction. Q. And was it always clear to 6 participants that there was no guarantee that they would be a successful bidder and that -- A. No, there was no guarantee. In fact, there was quite a lot of anxiety on the part of the lessees that they were concerned they would not be successful in the bidding process. And in the bidding process, then, is the property actively marketed? And how is it marketed? It was marketed with the MLS. It was marketed on TV, on radio, on the internet, and in newspapers. And have there been occasions where owners whose property was voluntarily placed into the VAFO, or now called BAFO, I believe... Just to be clear, what do those two things stand for? I think it's V, as in Vernon, A-F-O, voluntary auction for ownership Q. 1 1 A Q. A. 1 Q. A Q A.

40 1 Q. And I've heard the term VABO. Is that different, or has it always been -- 3 A. It's always been V, as in Vernon. 4 Q. So the auction proceeds, and there have been situations where owners who had wanted to acquire 6 their own property have, in fact, been outbid. A. Q. Does this continue to be -- does the association that is now called the Cabin Association, do you continue to monitor the process on behalf of your membership? And advocate for the positions of the association and the membership? And in your particular situation, obviously, you acquired the property and then received word from the Bonner County assessor that your land valuation was substantially in excess of what you had just paid for it; is that correct? That's correct. And you heard the testimony yesterday of the Bonner County assessor, Mr. Clemons? You were here for that testimony? Yes, I was here for that Q. And did you hear his testimony that the State was under some sort of mandate or compulsion to 3 sell these properties? 4 A. I heard him indicate that the State was forced to sell the land. 6 Q. In your entire experience with the process, do you have any indication that the State was under any mandate, official or unofficial, to sell these properties? No. Why do you believe the State has decided to sell these properties, as opposed to continue with the lease arrangement at 4 percent of the appraised value? As I stated before, the lease rate is 4 percent of the appraised value. The State, thanks to the prodding of our organization, came to the realization that they could make more money selling timberland than they could leasing. The return on their investment, according to them, was 6 to percent on timberland. We ran several spreadsheets and provided them to the State that indicated to them that they would be better off selling the land. And at one time was there discussion before this process went forward of doing land trades where the State would theoretically acquire higher earning 3 1 A. Q. 1 A. Q A. Q. 3 4 A. A. Q. 1 A Q. 4 1 land, like timberland, as opposed to -- A. Yes, the sales process got off to a fairly 3 rocky start, and there was two options the State was 4 entertaining. The Constitution allows the State to dispose of their land either by auction or exchange. 6 Early on in the process, there were two proposed exchanges. One was a timber exchange and one was a -- others were commercial real estate exchanges. In the end, the attorney general ruled that the exchanges for either one, whether commercial or timberland, were not like for like exchanges. His opinion was, if you're going to exchange for cabin sites, you had to trade cabin sites. So the two other previous exchanges were nullified, and it left them with the option of the auction. And do you know, if you know, if the State wants to improve its return by selling these cabin lots, why they are selling it in incremental groups of 0 or so, as opposed to just putting them all on the market in the manner that they're doing, 0 or so a year? From what I hear from the State, it's a matter of logistics. The State does comprehensive appraisals. They had a history of appraisals before the auctions that wasn't good, I guess. They hired 33 1 appraisers. At one time, they had four appraisers. They divvied up the lake amongst four appraisers, and 3 those appraisals were full of flaws. And we pointed 4 those out to them, and they threw out the appraisals and froze our rent for that year. 6 Later on, when the Hall-Widdoss came out, the lessees sued. Not our organization, but a group of lessees, many of which were within our organization. They entered into a lawsuit to sue the State over the Hall-Widdoss values. So there was some pushback on those values. I don't know if I answered your question, but what was it? I think it's somewhere in there. Yeah, okay. It became clear. But in any event, I assume the lawsuit and the complaints that you referenced earlier in the testimony were based upon the view of the leaseholders that the Hall-Widdoss appraisals on the land were generally too high. Correct. Obviously, on the improvements, the cabin owners already owned those; correct? Right Q A Q. 1 A. Q A. 3 Q. 4 A.

41 1 Q. And so was the almost universal complaint the feeling that the Hall-Widdoss were above market 3 value for Priest Lake at that time? 4 A. Yes, and the State made an accommodation that we could challenge those appraisals, the 6 Hall-Widdoss appraisals. We could get our own appraisal, and if it was within percent from the Hall-Widdoss appraisal, the State would then take both appraisals to a third appraiser, and he would -- a peer appraiser, and he would make the determination which appraisal was valid. And if he... I'm trying to recall the whole process now, but it could end up with another fourth appraisal as a result of this challenge process, which got kind of out of hand for the State. But, so, before they finally got an appraisal, you could have had -- a final appraisal, you could have had up to four appraisals. And ultimately, would the State set the minimum bid at the conclusion of this review process where one appraisal challenges the other, and then a third -- Yeah. So there was a vetting process if the landowner felt the appraisal was too high. There was. 3 1 Q. And you never saw that occur in the belief that the Hall-Widdoss appraisals were too low. 3 A. No. 4 Q. Or did you hear of anyone say that they were too low? 6 A. No, never heard that. MR. ELSAESSER: I don't have anything further. Thank you, Mr. Christenson. THE COURT: Mr. Braden? MR. BRADEN: Thank you, Your Honor. CROSS-EXAMINATION BY MR. BRADEN: You stated that the Hall-Widdoss State appraisals overvalued the properties; is that correct? That's my opinion. What was that opinion based on? I think we had four prior appraisals, and none of them reached the amount of the Hall-Widdoss appraisals. Were those prior appraisals the ones you testified were thrown out, I think were the words? Were those the ones that were later thrown out? No. Were those ones that you or members of your association had requested? Q A. 3 Q. 4 A. 1 Q. 1 A. Q. 1 A Q. 1 3 A. 4 Q. 1 A. There were... I'm trying to recall. 3 There was one that I contracted. There 4 was... I'm trying to recall now. 6 I think I only paid for one appraisal, so the others were paid for by the State, I'm pretty sure. Q. How many appraisals of each property did Hall-Widdoss perform? I have no way of knowing. Were there... When was the most recent Hall-Widdoss appraisal? I believe those would be the ones for the 01 VAFO. Did they perform any appraisals prior to 01? Yes, they provided appraisals for the State, I believe, since 0. Was there a difference in the market value in between, say, the 0 appraisals and the 01 ones? What was the difference? I can't speak. I'd have no -- I cannot say for certain. I know they have increased over time. 3 1 Q. Did the market value change between appraisals? 3 A. I'm not an appraiser. I can't answer that. 4 Q. A. According to the appraisals, they did. 6 Q. That's the question I was asking, so thank you. A. Yeah. Q. You mentioned a lawsuit based on appraised values. Was that concluded by a court order or by a settlement? Court order. What was the court order? The court order ruled in favor of the Hall-Widdoss appraisals. If I could get the clerk to hand you Exhibit, please. They're in the binders. I'm sorry. THE COURT: Would you... THE WITNESS: BY MR. BRADEN: If you could turn to page 4 of that exhibit, please. And starting on the previous page, page 3, what are those pages of that document? 3 A. Q. 1 A. 1 Q. 1 1 A. 1 0 Q. 1 A. 3 Q. 4 A. 1 A. Q. A. 1 Q Q. 3 A. 4 Q.

42 1 A. These are the pages I submitted with my appeal of our -- the land value, assessed land value of 3 our property in Q. Going back to page 4, towards the bottom, if I could direct your attention to the section 6 entitled "Validity of the Auction Process"... A. Gotcha'. Q. What do you describe there? A. Do you want me to read it, or... You can just -- I mean, you can just describe what's there. You don't necessarily have to read it word for word. Rather than trying to abbreviate what I tried to put so eloquently in words, I think I'll just read it. THE COURT: Mr. Christenson, we tend to read really fast when we're reading out loud. Don't succumb to that temptation. THE WITNESS: You don't want me to read fast. MR. BRADEN: Go ahead. Thank you. THE WITNESS: "Validity of the Auction Process. As mentioned above, the Constitution mandates 'The sale of endowment lands shall be done in such a manner as would secure the maximum long-term financial 3 1 return to the institution.' "Idaho Code -300 further proscribes the 3 auction process. In order to conform to the 4 Constitution, the Idaho Code -300, the Land Board initiated an auction process that includes 'soft 6 marketing' of sites immediately after the Land Board selects sites to be auctioned with the 'coming soon' information on the auction company's website, and later, prior to the auction, at least four weeks of 'hard marketing' of the cottage sites entered into the auction, including posting signs at each site, making the sites available to the multiple listing services, and provided for the viewing of the properties. "The Land Board contracted with Corbett Bottles Real Estate Auctions. The State requires the auctions to be live, public auction, and requires advertising to be done in a comprehensive manner in order to provide maximum opportunity to obtain the best value for the endowment. Corbett Bottles markets the auctions on a national scale, has received calls of interest from over 0 states, as well as Canada, and they implemented an especially strong newspaper, radio, and television marketing campaign in the Spokane area where the majority of Priest Lake owners live." Thank you. 330 Q. 1 A Q. 1 When your property was put up for auction, was there any bidders other than yourself and your 3 wife? 4 A. No. Q. If they received all these calls of 6 interest and marketing, do you know of any reason why that would be? A. Q. What would that be? The price was too high. Do you know why someone would believe that the price was too high? Because there's no bidders. You mentioned that owners of these parcels could continue to lease or they could have them put into the auction. Would they be able to lease these indefinitely? They could lease under the terms of their lease, which has an expiration date. But the property would eventually be sold, wouldn't it? It has not been determined by the State. I thought they were selling off all these parcels. The State has entered into an auction process that they can stop at any time. A new Land Board can stop a sale, the existing Land Board can stop 3 the sales at any time. 4 Q. They could have, but they haven't, have they? 6 A. They have not yet. There's no guarantee that these sales -- they've currently approved the plan that the VAFOs will be offered through the end of 04. Q. When you leased the property, did you have a right of first refusal on that in case they were sold? Explain what you mean there. Would you have the first -- if they were put up for sale, would you be guaranteed the first opportunity to buy it? No. Did you have the first right to renew the lease? Did you lose that right before the parcel was auctioned off? No. You testified that... Going back to the marketing, you mentioned you believe that there were no other bidders because 33 A. Q. 1 A. Q A. 1 0 Q. 1 A. 3 Q. 4 A. 1 A. Q. 1 A. 1 Q. 1 1 A. 0 Q. 1 A. 3 Q. 4

43 1 the price was too high. Do you believe the improvement value was too high, or the land value, or both? 3 A. The land value. 4 Q. What about the improvement values? A. I have no problem with the improvement 6 value. Q. You mentioned in your testimony that you -- that there was anxiety over losing the property whenever a property would go up for auction sale. Correct. Wouldn't that be a strong motivation for the owner of the improvements to buy the land? Please say that again. If you're concerned about the property going to auction sale and potentially losing that property where you owned the improvements, wouldn't that be a strong motivation to buy the land at auction? The lessee has -- can voluntarily put their property in the auction. When they do that, they've been fully notified and understand the conditions of the auction. Once they're in the auction, there's always -- I still think today there's plenty of anxiety about somebody will show up to outbid you for your property. A. Q. 1 A. Q A Q. 333 Wouldn't that motivate you to buy the property, if you could? 3 A. You wouldn't have put it in the auction if 4 you didn't buy the property. MR. BRADEN: Nothing further. 6 THE COURT: Mr. Elsaesser? MR. ELSAESSER: Nothing further. THE COURT: Mr. Christenson, you may resume your seat. MR. ELSAESSER: If we could have our afternoon break, Your Honor. 1 THE COURT: Oh, that's right. Wow, it's :30. Let's go ahead and take our afternoon break. Let's come back just before 3 o'clock, maybe about to 1 3. We'll be in recess until then. (Recess.) 1 THE COURT: You may call your next witness. 1 MR. ELSAESSER: I would recall Ed Morse. 1 THE COURT: If you would retake the stand, 0 and I'll simply remind you that you're still under 1 oath. REBUTTAL EXAMINATION 3 BY MR. ELSAESSER: 4 Q. Mr. Morse, good afternoon again. You have had the opportunity to be present for the testimony of Miss Berscheid and Mr. Clemons; is that correct? A. That's correct. 3 Q. And first I want to speak to you 4 about the testimony of Miss Berscheid with regard to some specific sales comps, or I'll call them the sales 6 that you itemized, I think a total of 1, that, depending on the appraisal, you used certain ones of those in your efforts to find fair market value. THE COURT: I'm sorry. I don't mean to interrupt. Pull the microphone a little closer. MR. ELSAESSER: Sorry. 1 Q. BY MR. ELSAESSER: So you heard her testimony with regard to some specific sales that you had identified as potentially comparable sales with 1 regard to your appraisals. A. Correct. 1 Q. And I think that comprised a total, if I'm 1 not mistaken, of 1 sales. 1 A. I have 1 sales in my appraisals, yes. 0 Q. But you do not use all 1 sales in each 1 appraisal. A. No. In fact, I didn't use for comparison 3 purposes all 1 sales, but I used them for analysis 4 purposes. Q. And I believe you testified previously, but 33 1 I just want to be clear, that you identified that you did utilize three west side properties, west side of 3 Priest Lake properties within that 1; is that correct? 4 A. Correct. In fact, there might even be four over there, but, yes, I looked at those sales. 6 Q. And why did you include those in the body of 1? A. For comparison purposes. You always want to try and bracket your sales data, get sales that are better than your subject parcels and get sales that are inferior to your subject parcels. 1 You also want to be able to study the sales over a period of time to look at time trends. The particular sale that I believe she mentioned, sale 1 number in 0, and insinuated that it was dated, I don't believe I have ever used that for a direct 1 comparison. It was used because it was another sale 1 down in that area a couple years later to be able to 1 look at and analyze whether there was measurable time 0 trends during that period of time. 1 So you will look at a variety of data, some better, some worse, to be able to bracket the comps 3 that you're using and understand what the trends are 4 for that type of property. Consequently, there is data in my sales analysis that was not used for comparison 336

44 1 against any lot. Q. And similarly, you utilized, I 3 believe, and I believe you testified to this, you used 4 three parcels in which there were improvements on the parcels -- 6 A. Correct. Q. -- to gauge. And given your testimony about and your critique of the extraction method, why would you utilize those three sales in your compendium of 1? At least one of those had a relatively modest amount of improvements on it. I wanted to look at it and analyze whether I found any measurable difference between those. And I had a lot of land sales, so I did not use the extraction process per se where they're using a sales price minus the cost of an improvement as an indication of land. I had sales price and I had land sales that I could identify the land component, so I was interested in identifying the improvement component and seeing what that came out. And you can use that back and forth as a check to see how your data fits, how those land sales and land comparisons fit in other areas. And finally with regard to -- I guess I'll call it a critique of your sales, do you 33 1 recall the testimony with regard to the one sale where the actual frontage was reduced from 1 to 4 feet? 3 A. Correct. 4 Q. And what was the circumstance of that sale? 6 A. There's a rule in appraising and analyzing sales that you use the data available to the parties at the time the property sold. I was aware that there was an issue that came up about frontage on that property, but it arose after the date of the sale. There was a meeting of the minds, there was a representation of what the frontage was at the time that it sold. I interviewed the listing agent, he said that's what we thought when we sold it, you know, it may be something different. Again, I don't believe I ever used that sale because of that issue in my direct comparison analysis in the valuation of my subject properties. But it is one of the few -- realize, we've got a relatively small population of land sales that we can analyze, and I tried to analyze all that I thought were pertinent and credible in this assignment, and that was one of the sales that I used. It, to the best of my knowledge, doesn't impact any of the conclusions that I've reached. 33 A Q Q. And with regard to any other errors that were mentioned by Miss Berscheid, have you -- 3 prior to both your deposition and this trial, have you 4 gone back through in an effort to adjust or correct for any errors in the sale comparisons? 6 A. I have. Q. And with regard to the written appraisals that have been admitted by stipulation in this matter, does it -- are there any changes to the findings of fair market value that are represented on the spreadsheet that we previously discussed as item 36? No. Do you recall Miss Berscheid's testimony earlier today about acknowledging that the fair market value for the State Department of Lands appraisals were appropriate for their purposes? And did you also hear her testify that they were inappropriate and excluded or disregarded for the purpose of being considered by the Bonner County assessor? The Department of Lands, is it your understanding that they are trying to obtain the highest and best value, but at a minimum fair market 33 1 value for any property that they sell or lease? A. 3 Q. And we've had it stated many times, but the 4 definition of fair market value for the purpose of assessing land by the assessor's office is also a 6 finding of fair market value, which you've testified to was the standard you used in your appraisals; is that correct? A. That's correct. And what the assessor's office is mandated by statute to conclude. Can there be two fair market values at approximately the same time that would vary to the level of 0 to 0 percent, in your opinion, for the same purpose of finding fair market value? No, that should not happen, and it should not be arising in this case. And why is that? Based on the testimony I heard, it was attributed to a difference in the scope of work. The scope of work in an appraisal must always produce credible results. When you exclude data in the marketplace, you're going to bias your analysis or your conclusions, and consequently, I believe that the A. Q. 1 1 A. 1 Q A. 3 Q. 4 Q. 1 A. Q. 1 1 A. 1 1 Q. 0 A

45 1 extraction technique used and the exclusion of the unleased lot sales, which I believe to be arm's length, 3 and even unleased lot sales that were exposed to the 4 market did not sell, that's critically important and a major part of the sales data on the east side of Priest 6 Lake. We have relatively few land sales there each year, and those unleased lot sales comprise a good portion of it. That's the market, in my professional opinion, that we ought to be looking at to determine land value, not an extraction process. Q. And is there anything in your 1 experience with regard to the sale of unleased lots, as well as the lack of bidding on unleased lots, anything about that sale process that would, in your opinion, 1 make them invalid or not comparable to the land value for the lots that are on appeal? 1 A. No, I think they're valid sales. 1 Q. And you'll recall, I think, Miss Berscheid 1 testifying that, for the most part, the unleased lots 0 that were sold at auction did not receive higher bids 1 than the base bid of the fair market value of the Hall-Widdoss appraisals. Do you recall that? 3 A. I do recall that. 4 Q. And again, does that indicate to you that there is any significant difficulty with the Hall-Widdoss appraisals as establishing a floor for the State of a minimum of fair market value? 3 A. No. When you're not seeing major 4 up-bidding and you're seeing properties that are advertised, that are offered, that are listed in MLS, 6 that invite participating brokers and you're not seeing those properties sell, that is an indication of how thin the market is and that the buyers do not perceive that those parcels are below market, sub-market at the offered prices. Q. And did you -- do the sale of the unleased 1 lots... You mentioned that there are relatively few sales of undeveloped or unimproved property at Priest 1 Lake. Of those that are taken together with the unleased lots, did those create a sufficient comparable 1 base for you to be able to complete your appraisals to 1 find a land value without having to utilize an 1 extraction method? 0 A. 1 Q. And did you hear Miss Berscheid talk about the fact that you were perhaps not accounting for 3 enough increase in the value of land on Priest Lake, 4 and particularly this neighborhood on the east side of Priest Lake? 34 1 A. I heard those comments, yes. Q. And what you were looking at was a 3 valuation date, with the exception of Parker, of 4 January 1st, 01; correct? A. Correct. 6 Q. And for Parker, it would be January 1st, 0. A. Correct. Q. So for all of them except Parker, was your window -- you've already explained the 0 sale -- was your window the years immediately prior to January 1st, 01? Of course. And is that the time period you're talking about justifying a percent market adjustment? The only sales that I adjusted, because I found no other basis in the sales data, was using 0 sales, and when I used the 0 sale, I adjusted it. I also adjusted the sales from the State for the cost that the buyers were aware of when they went into the transaction. But the sales need to be looked at and analyzed as independent facts that the appraiser considers in arriving at their analyses and conclusions, and this concept that we didn't like the appraisals or we don't like one thing or the other, so we're going to ignore them all, they comprise a large 3 portion of the market transactions there. They are 4 most proximate and most similar in attributes and characteristics. 6 Q. And with regard to the extraction method that you've testified was used for the bulk of the valuations for the county assessors, if you're basing your comparables on extraction and you're disallowing any consideration of the unleased lot sales, does that create a bias? In my opinion, it does. What do you mean by "bias"? And I don't use bias in the sense necessarily that somebody intended to make the results go one way or the other. I'm talking about bias in terms of like statistical analysis, whereby deleting data and not considering data that occurs in the marketplace, your results are skewed. And so many of the sales that they use to determine land, number one, excluded the unleased lots and the Land Board sales, and two, they used improved sales and used what they've testified to as the extraction process, where they pick sales price minus value of improvements equals land value. I have -- and any professional appraiser, in my A. Q. 1 A A. Q. A

46 1 opinion, would have -- severe reservations about that. We've got sales suitable for comparison, land sales in 3 the marketplace that are most similar, and to try and 4 use improved sales that the assessor has acknowledged and admitted they've only inspected once every five 6 years and they've never been inside that property, to use this extraction process, it was intended to be only used where you had a very minimal amount of improvements that you had to adjust for in order to -- the difference between sales price and land value. And they're applying it to situations where half of the value of the sale or a third of the value of the sale may be improvements. And in one $ million transaction there, maybe three-quarters of the amount of the sale was improvements, and you can't do that accurately if you don't know exactly what's in that dwelling, what condition it's in, the condition of all the other improvements on the site to be able to accurately value and appraise those improvements, and they neither have that data, nor do most appraisers, and that's why we don't use that method. And finally with regard to the concept of meander versus point to point, did you hear the testimony earlier today from Miss Berscheid that not all the -- that there's some undefined percentage of 34 1 Priest Lake property that utilizes meander and some that utilize point to point? You heard that testimony? 3 A. Yes, I did. 4 Q. And in any case, with regard to your appraisals, your appraisals considered both meander and 6 point to point. A. Yes, they did. Q. So your conclusions and your appraisals address both those issues. That's correct. The -- Go ahead. I'm sorry. That's correct, and I used it in every sale that had a difference. Understand, most of those are only the State lot sales. You don't find both of those figures for other existing private land sales in the marketplace. But whenever those -- both of those numbers were available, I looked at them. And then I also used point to point that came out of the other private market sales so that I could compare like with like. And if you're trying to use this meander measurement on the State lots, you've got to remember, it's a smooth curved line that is plus or minus, and you don't find that in any other sales in market data. Can the use of meander by the County on the Q. 3 4 A. Q. 1 A Q. 1 State lots, particularly when all lots are not being uniformly assessed on the basis of meander, can that 3 create disparate results that would create an increase 4 in the value using meander over point to point for the land value? 6 A. It certainly creates disparate results as it's being applied on the State lots, in my opinion. It does result in an unequal treatment on an uncertain amount of meander frontage, as indicated on the State plat lots. MR. ELSAESSER: Thank you, Mr. Morse. That's all I have. THE COURT: Thank you. Cross-examination, Mr. Braden? MR. BRADEN: Thank you, Your Honor. CROSS-EXAMINATION BY MR. BRADEN: Mr. Morse, you testified that there shouldn't be such a vast difference between the market value found by the assessor and the market value found in a fee appraisal; correct? Correct. If that happens, couldn't that be because of the difference in the comparable sales used, as opposed to the scope of work? 34 1 A. Well, it could be interpreted as that, but one would normally think that the sales data would not 3 vary that much, and the Uniform Standards of 4 Professional Appraisal Practice require appraisers to not limit scope of work so that the value conclusions 6 are not credible. So when we've got such large variations in value, that's not explained by the scope of work. It could be explained as a result of excluding sales because the assessor didn't like the appraisal. Or the fee appraiser. It could be because the fee appraiser didn't use comps that they didn't like. It could be. MR. BRADEN: If I could have the clerk hand Exhibit FF to the witness, please. BY MR. BRADEN: And if I could have you turn to the last page of that exhibit. And there should be a table with four rows in the middle of the page, and my question on that... Yes, that's the correct page. Thank you. You're talking about the second set of data down here, or... The second set of data, yeah. Are these lease auction sales? Q A. 3 Q. 4 Q. 1 A. 1 1 Q A. 3 4 Q.

47 1 A. Looks to me like it says "Total ULA Sales." Q. And the first two properties sold 3 for the appraised value; correct? 4 A. That's what this table would indicate, yes. Q. But the other two, it appears that they did 6 not sell; correct? A. That's what -- I don't have the column headings, but I'm assuming that that's what it means. Q. Now, the two that did not sell had a lower appraised value than the two that did sell; isn't that correct? Correct. Do you have any opinion as to why that could be? Yeah. What would that be? Because they're worth less. They are -- they didn't sell because they're worth less? Would you please restate your question. I'm asking if you have an opinion as to why the higher priced unleased auction sales would sell where the lower priced would not. Because the buyers for those two desired the two higher priced lots. They did not desire the 34 1 lower priced lots. Q. Now, when you talked about using meander 3 line versus pin to pin, you would agree that in some of 4 your comparable sales used, you considered both, and some you considered only pin to pin, and some you only 6 considered meander; is that correct? A. I don't believe that's correct. Whenever I had meander and pin to pin, I believe I considered both, and some sales do not have meander measurement and so I would use pin to pin or whatever is indicated on the plat. And I also wanted to clarify this a little bit. I don't think there's any disagreement on my part that measurement along the ordinary high water line should be the appropriate measure for a waterfront lot. Where we're running into a major difference of opinion is when that line as applied on the State lots goes out around man-made rock piles and rock jetties. It does not reflect the natural water line of the lot, and where it is a plus or minus measurement, it is not a point certain. As I testified earlier, I've been in this business a long time, and I've looked at thousands of plats, and I've never seen anything like these State plats A. Q. 1 A. Q. 1 A. 1 Q. 1 0 A. 1 Q. 3 4 A Q. So when you were comparing parcels with either just pin to pin or perhaps pin to pin and 3 meander, did you make any adjustments to those 4 measurements to compare like with like? A. I used meander against meander and I used 6 pin to pin against pin to pin. Q. Wouldn't the market value still be the market value regardless of how the shoreline is measured? Not if you have differences in measurement between the sales and your subject parcel. It will influence the data conclusions. How would that occur? Where you have either more sales of one kind than the other or you have different shape sales, you have relatively conforming flat frontages and older plats, and then you have these larger meander areas from distorted shapes from rock piles along the side lot lines and you get a to 1 or 0 percent difference in meander measurement. But wouldn't it be possible to make adjustments to account for those differences? Not easily. But it could be done. It's not being done by the assessor, in my 31 1 opinion. Q. But it could be done? 3 A. Theoretically. 4 MR. BRADEN: That's all I have, Your Honor. Nothing further. 6 THE COURT: Follow-up, Mr. Elsaesser? MR. ELSAESSER: Just a couple questions. FURTHER REBUTTAL EXAMINATION BY MR. ELSAESSER: Going back to that last page of FF, do you still have that in front of you -- Yes, sir. -- Mr. Morse? With regard to the four unleased lots, you mentioned that two didn't sell because the buyers weren't interested and two did sell because the buyers were. But the ones that did sell sold at no more than the Hall-Widdoss appraisal; is that correct? That's my understanding. And the ones that didn't sell didn't obtain a bid that met that minimum bid price; is that correct? Correct. And that's a sign the offered property for sale that is not purchased is absolutely contrary to the notion that these parcels are being offered at below or submarket prices. 3 A. 1 Q. A Q. 3 A. 4 Q. A. Q. 1 A. Q A. 0 Q. 1 A. 3 4

48 And one other comment. I believe that this table that I'm looking at, which I don't know what date, what year it is, 01, August of 01, which would be after the date of valuation in this case, but I believe one of those is a sale that I was incorrectly provided by the State, and it did not close, and it's either Lot 40 or Lot 41. I think Spilker is involved, was involved in one of those transactions. But, again, this is the kind of data that you can be provided that is not necessarily accurate, and it takes a lot of work to try and correct it when you find it, and I believe that that's a defect in Exhibit FF. MR. ELSAESSER: Thank you, Mr. Morse. That's all I have. THE COURT: Any follow-up, Mr. Braden? MR. BRADEN: Nothing further, Your Honor. THE COURT: Thank you. You may resume your seat. Thank you. Any further witnesses? MR. ELSAESSER: No, the Appellants rest, Your Honor. THE COURT: All right. Surrebuttal, Mr. Braden? MR. BRADEN: No, Your Honor. THE COURT: All right. I have wanted to 33 ask Miss Berscheid a question, and I forgot to, and so I would like to have her recalled. And, of course, any of my questions are subject to attorneys' objections, and I'll take those objections into account, and I won't be offended. Or I won't act like I'm offended. No, seriously, I mean, really, if I'm asking questions, there ought to be objections if the questions are objectionable. THE COURT: Do you have Exhibit 36 in front of you? That's the spreadsheet. MISS BERSCHEID: I can get it. THE COURT: Hold on just a moment. Looking at the County Assessment column and the County Assessment Without Improvements column, with the exception of the Powers lot and the Wakeley lot, it appears that the difference in the assessed value for every single one of those lots is,000, and in the Powers and the Wakeley lots, it's 6,000. Are all of these improvements the same value? MISS BERSCHEID: What you're referring to is the site improvement value, which attributes to the driveways, utilities, clearing of a building pad. So a reason a parcel may have 6,000 is if they have two site improvements, meaning multiple dwellings on the 34 1 parcel. THE COURT: So all the site improvements 3 were valued at the same level? 4 MISS BERSCHEID: THE COURT: And so does this Exhibit and I realize this is not the County's exhibit, but does it reflect structure value? MISS BERSCHEID: Again, I didn't create this spreadsheet. I'm not sure if "County Assessment" is referring to our land assessment or is that total assessment. I wouldn't be able to answer that question. THE COURT: MR. ELSAESSER: Your Honor, I can probably help answer it, if I could. This is land, and the first column that says "County Assessment" is under "Land," but then there's sort of an automatic subtraction of, or in the case of multiple improvements, 6. It does not include -- none of the figures here include a home or a building. THE COURT: MR. BRADEN: That was my understanding, as well, Your Honor. THE COURT: That's all that I had. Any follow-up from you, Mr. Elsaesser? 3 1 MR. ELSAESSER: No, Your Honor. THE COURT: Mr. Braden? 3 MR. BRADEN: Just one question. 4 Q. BY MR. BRADEN: The column regarding County Assessment Without Improvements, does that correspond 6 with what you've testified to be residual land value? MISS BERSCHEID: Correct. MR. BRADEN: Thank you. That's all I have, Your Honor. THE COURT: Thank you. All right. We've reached the end, then, of the evidence portion of this trial, and what are counsels' requests with respect to closing arguments? Mr. Elsaesser? MR. ELSAESSER: Your Honor, we had agreed coming in that we would submit those in writing. We haven't had further discussions on the dates. It is our intent to order a transcript, and I understand the reporter has a busy schedule coming up, so I think -- THE COURT: I can help in that regard as far as dates go. And have we all discussed doing closing arguments in writing? MR. BRADEN: We did at the pretrial conference, Your Honor

49 THE COURT: All right. That does ring a bell. What Miss Bolan is indicating to me is that she could have a transcript prepared by the th, which is two weeks from Monday. MR. ELSAESSER: My birthday, Your Honor. THE COURT: Well, for goodness sake. Then you're going to be busy after your birthday, aren't you. MR. ELSAESSER: THE COURT: And, you know, that's an estimate. It's always possible it could come before then, but what I would suggest, then, is I would anticipate that counsel will still be working perhaps on their closings even before they have transcripts, so I would... Would ten days following the th be sufficient for the appellants' closing argument? MR. ELSAESSER: Yes, Your Honor. THE COURT: So I would have to count that out... That would be November th for the appellants' closing arguments. And would ten days following that be sufficient, or would -- 3 MR. BRADEN: I'd like, Your Honor, if I could. THE COURT: Any objection to that, Mr. Elsaesser? MR. ELSAESSER: No, Your Honor. THE COURT: So that would be your closing argument would be due on Thanksgiving. So how about the day after or the day before? How about the day before? MR. BRADEN: The day before will be fine. THE COURT: I don't want you working after Thanksgiving. So that's the 1st for the County's closing argument. How many days do you want for reply closing arguments? MR. ELSAESSER: The following Friday, Your Honor? THE COURT: The 30th of November. MR. ELSAESSER: THE COURT: Not the 3rd. MR. ELSAESSER: No, no. MISS ELSAESSER: Please, no. THE COURT: All right. So when the appellants' reply brief is submitted, then I'll take this under advisement. What I am going to ask you to do is this: I know you'll file your briefs in our system that still has some bugs and quirks and doesn't always show something. Your pretrial briefs finally showed, and it shows October 1st, and so we know how that goes. Would you also please send your brief to my law clerk, and that way, I know that we have it and I'm not looking for it. And so her is jwatts, And then she will have that and I'll take it under advisement and get working on it. That also gives time for all of the exhibits to be scanned in, and we'll just take it from there. One of the things that I want to see in the briefs is a pretty good statement of what the standard of review is. This is an appeal, so I'm just assuming that it's different from a trial, that I'm not the trier of fact, even though we've had a trial, but if I'm wrong about that, you need to tell me that. In addition, I also recognize that we're on a double appeal level, that it has gone from -- I don't know what the first level would be, but before the Board of Equalization, there was an appeal to the Board of Equalization; correct? I don't know if that makes any difference. If it does on standard of review, address that, as 3 well, but I need to have the right standard of review, so I can be looking at this in the correct way. And so I would appreciate that very much. Another thing that I would like from counsel, and I'm going to ask you to work together on this... Where's that exhibit, the big one? If we were dealing with Lake Coeur d'alene, I would know where all the bays are, I know the names of them, I know the river going in, the inlets. I know the area. I'm not as familiar with Priest Lake, even though I've been on it before. In fact, I was telling staff that I even have to look at the compass note to see if I've got it upside down or right side up. Would you please submit to me a map of the lake with bays, areas, labels. I think I know where Coolin is, and that's about it. And so that would be really helpful, because then I can correlate some of the testimony about where these different neighborhoods are. I know east and west, but for the rest, I don't know the island or -- I just don't know it as well. That would be really helpful. And, you know, whoever wants to take that on and passes it to the other side, that would be great. I think those are all the notes I made to 360

50 1 myself. So I do appreciate all of the hard work that 1 REPORTER'S CERTIFICATE has been put in on this case. I appreciate your 3 4 testimony and the work done by all of the people involved, and the scholarship. It's really -- it takes 3 4 STATE OF IDAHO ) : ss. County of Kootenai ) a lot to put on a trial, and I really have a lot of I, DIANE M. BOLAN, a Notary Public and 6 respect for the work that goes into this, and not just 6 Certified Shorthand Reporter No. 43 in and for the on the part of the lawyers, but on the part of the State of Idaho, do hereby certify: County and the appellants. There's just an awful lot That the foregoing transcript of that goes into this, and I recognize that, and I proceedings was taken on the date and at the time and recognize how very important it is to all of the place herein stated; parties involved. That the foregoing is a true and correct 1 So if there's nothing further, we'll be in 1 transcription, to the best of my ability, of my recess. And I will be up here for the next couple of shorthand notes taken down at said time and place in days in another trial, and then I'll be back in the above-entitled litigation; 1 Kootenai County. 1 I FURTHER CERTIFY that I am not related to Anything further from the appellants? any of the parties or attorneys to this litigation and 1 MR. ELSAESSER: Do we need to -- we do have 1 have no interest in the outcome of said litigation. 1 the high volume of exhibits. Do we need to assist the 1 IN WITNESS WHEREOF, I have hereunto set my 1 Court in moving the big box of binders? 1 hand and seal dated this th day of October, THE COURT: That would be really nice, 0 1 wherever these need to be taken to. 1 THE CLERK: Tomorrow? 3 THE COURT: So you know where it is. All 3 4 right. Thank you for asking. 4 DIANE M. BOLAN, RPR, CRR, CSR No. 43 Anything further from the respondents? Court Reporter MR. BRADEN: Nothing, except it's been a real pleasure being able to work with opposing counsel. 3 I know you don't see it every day, and I wanted to 4 recognize it. THE COURT: I would weigh in on that, as 6 well, or join in on that is what I mean to say. We have trials sometimes -- and I'm really saying this to you folks -- we have trials sometimes where attorneys really kind of beat on each other and there's lots of objections and sometimes they're made for purposes of distracting people and distracting witnesses and 1 throwing them off their game. That's not something that happened in this case. These people are professionals, and it has been a pleasure presiding 1 over a trial with the level of professionalism and courtesy, and it's something that I really appreciate, 1 as well. 1 And I've appreciated not so much getting to 1 know you, because I don't know that I know you, but 0 seeing your faces here, it's been a very pleasant trial 1 to preside over. All right. Well, thank you all very much. 3 Court is adjourned.) 4 (Court adjourned at 3:41 p.m.) 36