Arrogance coupled with ignorance can be beautiful. Ill-advised appeals’ legacies can be, well, very appealing.
In 2000, Matthew and Sanae Burton bought a house on a corner in Norwood, OH, for $129,000. The couple transformed it into a Kumon Learning Center.
Subsequently, across the street, a very successful, 48-merchant, lifestyle mall, Rookwood Commons, opened. Exiting traffic looked directly at the learning center.
Soon, the developers wanted to expand across the street, which seemingly justified eminent domain and leveling dozens of homes. Some owners accepted the developers’ offers. The Burtons didn’t.
At the subsequent compensation trial, Norwood v. Burton, local appraiser Robert Garfield, hired by the Burtons, declared the property’s visibility component its most valuable asset. However, because comparable property didn’t exist, an accurate, standard appraisal wasn’t possible. Garfield estimated a property value of at least $600,000.”
The Burtons also hired Dr. R. James Claus, the Oregon appraiser and land-use expert. Claus said the visibility’s value could be calculated by determining the cost to replace the exposure. His methodology was subjected to peer review, accepted by the Small Business Administration and examined by the American Society of Real Estate Appraisers and The Appraisal Committee prior to being published in the book, The Value of Signs. Claus “conservatively” appraised the Burtons’ property at $500,000.
Norwood hired real-estate appraiser Raymond Jackson, who provided two estimations, $192,000 based on the cost approach, and $200,000 based on a market approach, but, in each case, he simply compared the property to nearby residences.
The jury awarded the Burtons $500,000 (see ST, March 2005, page 117). Now comes the good part. Fast forward to October 2005.
Norwood protested. It requested a voir dire, an examination to determine a witness’ competence. It wanted Claus’ testimony dismissed because he knew nothing about the local real-estate market. And, whereas Jackson’s formal appraisal complied with the Uniform Standards of Professional Appraisal Practice (USPAP), Claus’ appraisal didn’t.
All of which proved to be a blessing in disguise. The court upheld Claus’ credentials and, most importantly, his methodology. Inadvertently, Norwood confirmed:
1. Claus’ cost-of-replacement valuation;
2. That a business’ visibility component has a calculable value beyond the building and land value, and.
3. Claus’ ignorance of local real-estate values was irrelevant because his evaluation methodology supplanted a formal appraisal based on surrounding property values.
Prof. Alan Weinstein, the director of the Law & Public Policy Program at Cleveland State University’s Cleveland Marshall College of Law, identified other substantive truths the case provides. “It certainly speaks to the value signage can impart. Here, the location primarily added to the visibility component. Logic argues that an overly restrictive sign code, by diminishing the visibility of a business to potential customers, lowers the value of the business and, from the city’s standpoint, the revenues that could be derived from sales and property taxes.”
More than a decade ago, a sign company failed to erect two signs in time for a Best Buy store’s 1995 grand opening in San Antonio (see ST, March 1998, page 52). Claus calculated a conservative $213,000 loss in sales due to the signs’ tardiness. Using a different, income-capitalization approach (which examines customer feedback about signage), Claus calculated a $224,000 loss. Unfortunately, Claus’ strong argument triggered an out-of-court settlement, so no court ruling (or possible precedent) emerged.
Best Buy’s attorney said the settlement included “the same terms Best Buy had proposed, and the landlord flatly rejected, before Dr. Claus became involved.”
Ideally, the Norwood case will set a precedent despite not carrying the weight of a federal case.
This relates to the U.S. Supreme Court’s very controversial June 2005 Kelo vs. New London ruling, which upheld cities’ right to use eminent domain to condemn homes to facilitate private development. Very scary. Since then, 38 states have enacted legislation to curb eminent-domain abuse. A New York Times February 21, 2006 cover story cited states’ adverse reactions to Kelo.
Tragically, if property owners won’t accept a compensation offer, cities can declare areas “blighted,” which then decreases property value (and requisite compensation). In Norwood, former property owner Nick Motz started a website, www.norwoodblight.com.
Dana Berliner, a senior attorney for the Institute of Justice, which defended the New London homeowners, said, “Nearly every state needs not only to restrict the use of eminent domain for private commercial development, but also to reform their blight laws to stop bogus blight declarations.”