On appeal from the Superior Court of New Jersey, Law Division, Cape May County, Docket No. L-214-07.
The opinion of the court was delivered by: Carchman, P.J.A.D.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued telephonically October 17, 2008
Before Judges Carchman, Sabatino and Simonelli.*fn1
The narrow issue that we address on this appeal is whether the use of averaging of comparable sales by the trial judge in fixing the fair market value of the real property in issue represents an appropriate evaluation methodology and whether it fulfills a judge's fact-finding responsibility. Here, the trial judge, after excluding the high and low comparable sales presented by the expert witnesses in competing appraisals, averaged the values of the remaining comparables to arrive at a fair market value. We disapprove of the practice of averaging and conclude that it does not represent a reasoned and considered valuation technique. We reverse and remand.
The facts underlying this appeal are not in significant dispute. Plaintiffs Pansini Custom Design Associates, LLC and Roger Parkin are the owners of the property in Ocean City known as 801 Fourth Street, Lot 49, Block 303, consisting of a 100 x 130 foot (13,000 square feet) parcel improved with a single-family residence with a detached garage. The parcel was acquired on May 27, 1999, for $710,000 from Elizabeth Sheehan, who had resided on the property as her home. The property had been a former United States Life Saving Service and United States Coast Guard Life Saving Station until its retirement in 1940. The 19th century building is one of the last four lifesaving stations on the East Coast built by the United States Life Saving Services, the predecessor to the United States Coast Guard. Thereafter, additions and alterations followed as the premises was converted to a single family residence.
The property was designated as a historic structure under historic-preservation provisions of the Ocean City Zoning Ordinance. Originally located on the beach, because of changing tides and land accretion, the property is now two and one-half blocks from the beach and ocean. It is located in a developed mixed area, primarily a two-family residential zone. The property has been vacant since the sale by Sheehan to plaintiffs.
Because of the designation of the property as a historic structure, a developer must comply with the procedures set forth in Ocean City's zoning ordinance, specifically, the requirements of the historic-preservation ordinance, which controls development and requires a series of steps before a property owner can demolish a historic building. City of Ocean City Ordinance §§ 25-1800.1 to - .15.3.*fn2 The procedures under the ordinance require an owner to first apply to the City's Historic Preservation Commission for a demolition permit. O.C. Ord. § 25-1800.7.1. The Commission is charged with the responsibility of reviewing zoning applications that involve demolition, relocation or changes to historic buildings. O.C. Ord. § 25-1800.8.3. If the Commission denies the application, an applicant may appeal to the zoning board for review.
If the zoning board affirms the denial, an applicant may then obtain relief by adhering to a six-month waiting period during which it must try to sell the property for "fair market value" to "any person or organization, governmental agency thereof or political subdivision or agency thereof, which gives reasonable assurance that it is willing to preserve the building, place or structure and the land pertaining thereto." O.C. Ord. § 25-1800.10.1(d). In an earlier opinion, we interpreted that provision to mean fair market value of the property in its present use as a historic site. Pansini Custom Design Assocs. v. City of Ocean City, No. A-5635-99T5 (App. Div. April 9, 2002) (slip op. at 6), certif. denied, 174 N.J. 189 (2002). If at the end of the waiting period the property remains unsold, the applicant may then develop the property "as a matter of right." O.C. Ord. § 25-1800.10.1.
These procedures have been followed, as before plaintiffs purchased the site, Sheehan applied to the Commission to demolish the life saving station and build three duplex units. That application was denied. The Board of Adjustment reversed and granted the application, and the Law Division sustained the Board's decision. We reversed. See Citizens for Historic Preservation, Inc. v. Sheehan, Docket Nos. A-5106-03T2 and A-5845-03T2 (App. Div. July 26, 2005) (slip op. at 2), certif. denied, 185 N.J. 389 (2005). During that dispute, Pansini purchased the property from Sheehan and immediately began advertising its sale under the historic-preservation ordinance's notice provisions. Citizens for Historic Preservation, Inc. v. Sheehan, supra, (slip op. at 9).
Pansini advertised the property with a real estate broker for $1.1 million, which it deemed an appropriate price for a three-lot subdivision that could be developed with three duplexes. Defendant City of Ocean City disputed the price, claiming Pansini was required to advertise it for fair market value as a single-family home in a historic district. As noted earlier, we agreed with Ocean City, and in so doing, affirmed a trial court judgment concluding that Pansini did not comply with Ocean City's historic preservation ordinance. Pansini Custom Design Assocs. v. City of Ocean City, supra, (slip op. at 5).
Plaintiffs then filed this declaratory judgment action in the Law Division and sought to establish fair market value so that it could advertise the property for sale consistent with the City's ordinance. The trial judge held a two-day trial and heard three witnesses: an appraiser hired by Pansini, an appraiser hired by Ocean City and an appraiser hired by defendant Saving Our Station Coalition (SOS), objectors to plaintiff's proposed development.
In his decision, the judge criticized the appraisal methods used by all of the parties. He found that Pansini's appraiser improperly considered potential development of the site's excess property beyond its current use when evaluating fair market value and adjusting comparative sales. He also criticized defendants' two appraisers, noting that the comparable sales ...