Assessment Appeals Committee

Assessment Appeals Committee DETERMINATION OF AN APPEAL UNDER Section 16 of The Municipal Board Act and Section 246 of The Municipalities Act Appeal Number: AAC 2013-0326 Date and Location: February 10, 2015 Saskatoon, SK Gordon Bender - and - Rural Municipality of Bayne No. 371 (as represented by the Saskatchewan Assessment Management Agency [SAMA]) Appellant Respondent APPEARED FOR: The Appellant: The Respondent: SAMA: Gordon Bender Lonnie Sowa, Administrator Randy Raimbault, Assessment Appraiser Melissa Korol, Assessment Appraiser HEARD BEFORE: John Eberl, Panel Chair Felix Hoehn, Member Lise Gareau, Director

APPEAL AAC 2013-0326 Page 2 INTRODUCTION: [1] This is an appeal from a decision of the Board of Revision (the Board) for the Rural Municipality of Bayne No. 371 (the RM). [2] The role of the Assessment Appeals Committee (the Committee) is to review the record of the Board s hearings and decide if the Board made the correct decisions. If the Board did not make the correct decisions, the Committee must do what the Board should have done. The Appellant must show how the Board was incorrect. [3] The 2013 assessment for the following property is under appeal: Roll Number Legal Description Assessed Value 00000510 000 PT SW 09-38-25-W2; Block Y, Plan 66H04674 Land $4,600 00000510 000 PT SW 09-38-25-W2; Block Y, Plan 66H04674 Land $1,500 Classification Other Agricultural, taxable at 55% Residential, taxable at 70% 00000510 000 PT SW 09-38-25-W2; Block Y, Plan 66H04674 Improvement $217,000 Residential, taxable at 70% [4] The Board dismissed the appeal, with the exception of two adjustments to the 2013 assessment to recognize flooding complaints brought forth by the owner. The first adjustment was based on a recommendation from SAMA to increase the amount of land acres assessed as waste land. The Board increased the amount of acres of waste from five acres to 12 acres, resulting in a reduction of the land assessment of $3,500. The Board also ordered the assessment amended to recognize 50% obsolescence to the basement of the single storey residence on the property, resulting in a reduction of the improvement assessment of $14,100. These reductions were reflected in a revised data sheet for 2013, which was filed at the Committee hearing as Exhibit AAC R-2. [5] In the further appeal to the Committee, Mr. Bender accepted the assessed value for land as amended by the Board, but asked us to change the Board s decision on the assessed value of the improvement by recognizing a greater amount of obsolescence. ISSUE: [6] Did the Board make a mistake by dismissing the owner s request to further reduce the assessment of the improvement because of the effect of flooding on market value?

APPEAL AAC 2013-0326 Page 3 DECISION: [7] The Committee finds the Board made a mistake when it refused to reduce the assessment of the improvement further because of the effect of flooding. The serious and perennial flooding affecting the improvement would have a much greater impact on the improvement s market value than the 50% obsolescence of the basement recognized by the Board. PRELIMINARY ISSUE: Admission of New Evidence [8] The owner asked the Committee to admit into evidence a report dated July 23, 2014, from David Richards, P. Eng. and Graeme Swinnerton, CAPM, on behalf of McElhanney Consulting Services Ltd., Association of Professional Engineers & Geoscientists of Saskatchewan. The report detailed the result of a site inspection on June 23, 2014, regarding flooding concerns at the owner s residence. It also recommended short- and long-term actions to reduce the potential for further flood damage. [9] Sections 252 and 253 of The Municipalities Act (the Act) require the Committee to hear this appeal on the record unless one of the exceptions in section 253 applies. The only relevant exception is described in subsection 253(1)(c), which allows the Committee to accept new evidence if the person seeking to call the evidence has established that relevant information has come to the person s attention and that the information was not obtainable or discoverable by the person through the exercise of due diligence at the time of the board of revision hearing. [10] Mr. Raimbault objected on two grounds. First, he argued that since the inspection took place in 2014, it looked at a state of the property after the relevant assessment year. Second, he argued that Mr. Bender could have retained the engineering firm before the Board hearing so that their report could have been available to the Board. [11] Mr. Bender replied that he did not retain McElhanney Consultants. He had been working with the Saskatchewan Watershed Authority for the past seven years to seek a solution to the flooding on his land. He had also applied for Provincial Disaster Assistance. These longstanding efforts led the Water Security Agency to hire McElhanney Consultants. Since they were not retained until June 23, 2014, and their report was not produced until July 23, 2014, this report could not, with due diligence, have been available for the Board hearing on December 12, 2013.

APPEAL AAC 2013-0326 Page 4 [12] Mr. Raimbault s second position was that Mr. Bender could have retained these engineering and geophysical experts on his own such that their report could have been available in time for the Board hearing. It is probably true that Mr. Bender could have done this, but the test is not what is possible, but what is required by the legislated standard of due diligence. [13] Mr. Bender went to considerable lengths to present the Board with extensive evidence about the persistent flooding problems he experienced on his property. His presentation included most of the facts referred to in the McElhanney Report. These included the history and extent of the flooding, and the measures that Mr. Bender took to address the flooding and the seepage to his basement. He installed a sump pump that was in almost constant use, as well as a back-up propane generator so that the sump pump would continue to run through a power failure. He also used a number of fans and dehumidifiers. Mr. Bender provided the Board with documents that included numerous photographs, a copy of his applications to the Provincial Disaster Assistance Program, and references to his efforts to persuade Sask Water and the Provincial Disaster Assistance Program that they should consider helping him move his house to higher ground. The McElhanney report provides corroboration from independent experts of evidence already provided by Mr. Bender, as well as endorsement of Mr. Bender s opinion that his residence needed to be moved to higher ground. [14] Mr. Bender did all he reasonably could to present the Board with evidence of the flooding problem as well as possible solutions. Although he could have hired expert consultants himself, he had been attempting to persuade the responsible government agencies to take action, which they ultimately did. In view of the extensive evidence he provided to the Board, and in view of the considerable expense that obtaining the McElhanney Report on his own would have involved, the absence of this Report at the Board hearing was not due to a lack of due diligence. [15] We wish to emphasize that we are admitting the McElhanney Report in the particular circumstances of this case. In other circumstances it may well be that an attempt to file an expert report for the first time at the Committee level would have to be refused because with due diligence it could have been obtained in time for the Board hearing. This would be particularly likely in a case where the Committee is not satisfied that the appellant made every reasonable effort to make a full case to the Board, or where the amount of the assessment at stake is so high that the expense of hiring an expert to provide evidence to the Board would not be disproportionate to the amount of assessment value in dispute.

APPEAL AAC 2013-0326 Page 5 [16] We also cannot agree with Mr. Raimbault s position that the McElhanney Report is not relevant to the 2013 assessment because it is based on an inspection that occurred in 2014. The Report considered the characteristics of the site as found on the day of the inspection, but it also provided an analysis of the water levels on his property in a broader context, including assessing and recommending remedial actions. Moreover, the description of the water on the property and the challenges this posed to Mr. Bender s residence appeared to correspond closely with evidence, including photographs, which Mr. Bender had placed before the Board. The Panel invited Mr. Raimbault to draw our attention to any apparent material differences between the information in the Report and the circumstances of the property on January 1, 2013, the relevant date for the 2013 assessment, but none was offered, and Mr. Raimbault conceded that he didn t think there would be a vast difference. [17] The Committee expressed its willingness to accept the McElhanney Report at the hearing and advised that reasons would follow with the decision. Nevertheless, SAMA continued to present submissions to the Committee on the question of the admissibility of the McElhanney Report in its replies to post-hearing information requests from the Committee dated April 2, 2015, and April 14, 2015. The Committee considered these additional submissions; however, since they were similar to the arguments made by Mr. Raimbault at the hearing, they have already been addressed above. ANALYSIS: [18] Mr. Bender presented extensive oral and documentary evidence to the Board that demonstrated the subject property has been suffering from serious and persistent flooding since 2007. The Notice of Appeal to the Board states the issue is obsolescence, and summarizes the general state of his property as yard is totally flooded, no back yard, trees all dead, son s playground flooded, ten acres of my alfalfa and pasture gone Smells like slough all summer & fall, breeding grounds for mosquitos. Totally a disaster, eye [sore]. Value of acreage next to nothing. [19] Mr. Bender provided many photos to the Board, including photos of flooded outbuildings, power poles, a picnic area and a playground. The photos showed standing water near his residence and many dead trees in the back yard. He also supplied a copy of his application to the Provincial Disaster Assistance Program. This documentation was consistent with Mr. Bender s evidence that the water was only 15-25 feet from his wood basement. It also alleged that the water level is about four feet higher than his basement floor and that the basement walls were wet all summer. This flooding has been constant since about 2007. Mr. Bender blames this persistent flooding of his property on illegal ditching by his neighbour. He has been pursuing this but apparently with only limited success and that issue is outside of the scope of the Committee s jurisdiction.

APPEAL AAC 2013-0326 Page 6 [20] Some of the measures Mr. Bender took to keep his basement from flooding and to minimize the moisture from seepage were already outlined in paragraph [13] above. Mr. Bender submitted to the Board that he did not believe his property was marketable given its location in the midst of so much water. [21] The Board dismissed Mr. Bender s appeal based on obsolescence, with the exception of granting a 50% reduction in the assessed value of the basement. The only reason given for the decision is the following statement: We found that the [one unit dwelling] that was built in 1994 is still worth something and with the basement structurally sound, the house is still deemed livable. This conclusion is mistaken because it fails to address Mr. Bender s argument in support of obsolescence. The Board should have determined whether obsolescence existed and, if so, it should have made an effort to quantify this obsolescence. A finding that the house is still worth something and still deemed livable does little, if anything, to address a claim of obsolescence. Determining Obsolescence for a Non-regulated Property [22] Under section 193 of the Act, residential improvements are non-regulated properties because they do not fall under the limited categories of regulated properties described in subsection 193(h). The Act requires the assessment of non-regulated properties to conform to the market valuation standard (s. 194.1[2]). This standard is achieved when, among other things, the assessed value of property is prepared using mass appraisal, is an estimate of market value, and reflects typical market conditions for similar properties (s. 193[e.1]). [23] The Act defines mass appraisal as the process of preparing assessments for a group of properties using standard appraisal methods, employing common data, and allowing for statistical testing (ss. 193[e.3] and 195[1]). The dominant and controlling factor in assessment is equity (s. 195[5]), and for non-regulated properties, equity is achieved by applying the market valuation standard so that the assessments bear a fair and just proportion to the market value of similar properties (s. 195[7]). The Assessor s submission to the Board, at page 18, indicated that the assessed value of the subject improvement was determined using the cost approach to value. [24] The 2013 Market Value Assessment in Saskatchewan Handbook (the Handbook) provides direction for the assessment of non-regulated properties. Part A of the Handbook includes the Depreciation Analysis Guide (the Guide), which provides guidance to assessors on how to determine depreciation and various types of obsolescence. It is clear from this part of the Handbook that even in a system of mass appraisal, determining the market value of property may require examining and quantifying the depreciation and obsolescence of individual properties. The Guide, at page 7, defines functional obsolescence as a decrease

APPEAL AAC 2013-0326 Page 7 in value caused by an inability of an improvement to perform its function efficiently; [it] may be attributable to deficiencies, defects, inefficiencies, or super-adequacies of a property. It defines external obsolescence as the loss in value as a result of impairment in utility and desirability caused by factors outside the property s boundaries (at p. 8, citing Eckert, Joseph K. (ed), Property Appraisal and Assessment Administration, (The International Association of Assessing Officers, 1990), at 221). [25] The Guide offers assessors several ways of determining depreciation and obsolescence. We will not consider all of the alternatives, but we find the following comments in the Overview section particularly helpful in explaining the purpose of the analysis. This passage also highlights the shortcomings in the obsolescence analysis of both the assessors and the Board: There are a number of methods to determine the depreciation in a property. The valuation of a property using the cost approach may require elements of judgment regarding the property. Estimating these forms of depreciation is not necessarily straightforward, nor have all possible methods for identifying and quantifying depreciation been covered in this valuation guide. It is essential to recognize the obsolescence conditions and in some rational manner make allowance for these conditions in the valuation of the property. In the process of determining the depreciation factors there are three questions to consider. 1) Is there a depreciation problem in the property? 2) Does it affect the market value based assessment? 3) How can this depreciation be quantified? To address these questions the assessor must ask, How would a prospective purchaser, including the current owner, view this property? The market value assessment can only be completed after the potential issues of depreciation have been fully addressed and incorporated. [26] SAMA filed 35 pages of written submissions at the Board hearing, but only two paragraphs addressed the issue of flooding and obsolescence presented by the appeal, and only one of these related to the value of the improvement. SAMA claimed that the basement foundation did not appear to compromise the structural foundation and stability of the house. The basement was unfinished, and since the basement is functional, I am unable to change the assessment on the house. Oddly, even though the Board stated that it was rejecting the owner s appeal of the value due to obsolescence, it implicitly acknowledged that a depreciation problem existed because it ordered a 50% reduction in the assessment of the basement due to functional obsolescence. Based on the transcript and minutes of the Board s hearing, SAMA raised this adjustment as a possibility at the beginning and end of the hearing.

APPEAL AAC 2013-0326 Page 8 [27] By way of a request for information contained in a letter dated March 9, 2015, addressed to Melissa Korol, the Committee asked SAMA to provide one or more options to offer a greater reduction of the valuation of the improvements based on obsolescence due to flooding. In particular, the Committee invited SAMA to consider and to advise on the appropriateness of adjusting for functional obsolescence and whether this would fit under any of the ten typical, but non-exhaustive factors set out on page 11 of the Depreciation Analysis Guide (the Guide), such as site restrictions, and whether the long-term flooding could be considered analogous to environmental contamination. SAMA s reply ultimately accepted the principle of using the cost of moving the house to higher ground as a measure of obsolescence, without commenting which, if any, of the more specific provisions of the Depreciation Guide apply. The Committee is satisfied that in this case there may not be a need to find a more specific basis for calculating the obsolescence as long as the approach taken is consistent with the purpose of the analysis presented in the Guide and set out above in paragraph [25]. [28] Recalling the three questions the Guide poses for assessors, it is evident that by making the basement adjustment, the Board implicitly answered yes to the first two questions. It also quantified the depreciation at 50% of the assessed value of the basement, but it gave no explanation for how this was arrived at. In failing to provide any basis for this quantification, the Board erred. Indeed, Mr. Raimbault s submissions to the Panel also referred to this aspect of the Board s decision as an error. Mr. Raimbault observed that this finding was unsupported because it was not based on sales evidence or on a cost to cure calculation. He submitted that the original assessment should remain in place; however, since there was no cross appeal, the Committee does not have jurisdiction to find that the Board s assessed value was too low. [29] Having found that the Board made a mistake by not providing a basis for quantifying the obsolescence, the Committee must do what the Board should have done and modify the decision of the Board accordingly (s. 256 of the Act). Quantifying Obsolescence [30] According to the Guide, when considering how to quantify obsolescence, assessors should ask, How would a prospective purchaser, including the current owner, view this property? The opinion of the current owner was that in its current state, the property was not marketable. At least insofar as the owner was referring to the improvement in its existing location, the Committee believes this position has merit. It is unlikely that anyone would purchase the improvement after learning of the constant seepage into a wooden basement as well as the perennial flooding or threat of flooding experienced for the previous seven years. If any purchaser were to consider purchasing the house, it would only be for a substantial discount from the value of a similar improvement on dry land.

APPEAL AAC 2013-0326 Page 9 [31] The best measure of the obsolescence of the improvement is the size of discount that a prospective purchaser would require before considering the property as competitive in the marketplace. In the Committee s view, in this instance, the best measure of that discount is the cost of moving the improvement to dry ground. Indeed, the possibility that moving the house was the only feasible remedy for the owner s perennial seepage and flooding problems had already been raised in documents filed at the Board hearing (e.g., Exhibit H to Mr. Bender s submission to the Board and page 7 of the transcript of the Board hearing). [32] Therefore, the Board should have reduced the assessed value of the property by an obsolescence factor based on the cost of moving the house to higher ground. Another way of saying this is that in this case the cost of curing the obsolescence is the cost of moving the improvement to another location. If the cost of moving the house exceeded its value on dry land then the assessed value would be zero. Incidentally, and contrary to SAMA s submissions, the value would be zero even if the owner were still living in the property because the assessed value of non-regulated properties is based on market value, not value to the owner. [33] Mr. Bender moved his house in December 2014, in accordance with the recommendation in the McElhanney Report. At the time of the Board hearing the house had not yet been moved and so the Board could only have estimated the cost of moving the residence. To estimate the obsolescence of the property as it stood on January 1, 2013, we can consider the independent estimate of the cost of moving the house found in the McElhanney Report of $76,000, although its usefulness is limited because there is no breakdown of the expenses or other explanation of how the consultants arrived at this figure. Accordingly, to obtain additional evidence of what a reasonable estimate of the cost of moving Mr. Bender s home, the Committee asked Mr. Bender to provide documentation of his actual expenses to move the house, as well as estimates of any outstanding work. [34] In response to a request for information from the Committee, Mr. Bender provided receipts and cost estimates totalling $180,326.25. Of these, SAMA accepted $141,447.11 of costs and estimates in reply to the Committee s request to take this evidence into account when quantifying the obsolescence to the residence. SAMA applied a Marshall and Swift Cost Index adjustment factor to adjust the costs to January 1, 2011, the valuation base date for the 2013 assessment, which netted an adjusted figure of $127,775.17. SAMA then deducted this amount from the initial assessed improvement value of $217,000.00 to net a new improvement assessment after applying obsolescence of $89,224.83.

APPEAL AAC 2013-0326 Page 10 [35] SAMA accepted most of the expenses that Mr. Bender had submitted as relevant to determining an estimate of the cost to cure the obsolescence. In Mr. Bender s reply to SAMA s estimate, there were only a few items that SAMA had not included that he asked the Committee to consider. These include landscaping expenses not yet incurred, a sidewalk on the south side of the property, and the cost of a deck on the north side of the house. [36] When considering the items in dispute, we kept in mind that the purpose of determining the costs of moving the house was not to establish Mr. Bender s actual cost of moving the house, but rather, as indicated by the Guide, to determine how a prospective purchaser would view the property. Some costs, such as moving the structure of the house and disconnecting and connecting utilities would have to be borne by every prospective purchaser. Although landscaping and paving requirements associated with the move may be a cost considered by an arms-length purchaser, they would vary among prospective purchasers and so it is hard to say to what extent these costs should be included in this estimate. With respect to the deck material, SAMA advised that no deck was assessed on the appealed property. If that is so, then deducting for deck material may amount to double-counting. [37] In any event, the costs accepted by SAMA well exceed the estimated costs in the McElhanney Report. Considering these costs from the point of view of a prospective purchaser, a discount of $127,775.17 from the market value at the valuation base date of January 1, 2011, appears to be a reasonable estimate of the obsolescence, which is based on the cost to cure the obsolescence associated with the perennially flooded location of the residence. Conclusion [38] After incorporating the unchallenged adjustments the Board made to the land value and the Committee s decision on the value of the improvement, the particulars of the assessment of the property are as follows: Roll Number Legal Description Assessed Value 00000510 000 PT SW 09-38-25-W2; Block Y, Plan 66H04674 Land $1,100 00000510 000 PT SW 09-38-25-W2; Block Y, Plan 66H04674 Land $1,500 Classification Other Agricultural, taxable at 55% Residential, taxable at 70% 00000510 000 PT SW 09-38-25-W2; Block Y, Plan 66H04674 Improvement $89,200 Residential, taxable at 70%

APPEAL AAC 2013-0326 Page 11 Closing Comment [39] On more than one occasion during the hearing, the SAMA representatives raised the absence of an appeal by the owner against the 2014 assessment. The Chair observed that section 257 of the Act relieves the owner from having to file a further appeal on the same grounds if a decision on an earlier appeal is still outstanding. Therefore, this decision will apply, insofar as it relates, to the 2014 assessment. CONCLUSION: [40] The Committee allows the appeal. The assessed values and classifications of the subject property for 2013 are shown in the table in paragraph [38], above. Dated at REGINA, Saskatchewan this 28 th day of May, 2015. Saskatchewan Municipal Board Assessment Appeals Committee Per: John Eberl, Panel Chair Per: Lise Gareau, Director