Recently, the New Jersey Tax Court had an opportunity to review the issue of whether site improvements on vacant lots are subject to assessment by the local tax assessor. Hovbros Cinnaminson Urban Renewal, LLC v. Township of Cinnaminson, Docket No. 016828-2001. The property in question is a 16.48 acre parcel of property approved for 205 residential condominium units in 12 buildings, all age restricted to residents 55 years and older. After the owner acquired title, it started construction and installed certain site improvements. As of the valuation date of October 1, 2012, the site improvements included a road, parking lots, curbing, utilities, a roadway and parking lot drainage system, detention basins, and partial sidewalks. However, because of economic conditions, the pace of construction slowed. As of the assessment date, only 181 lots of the original 205 remained (others sold as completed homes), all vacant.

The property owner’s appraiser opined to a value of $7,000 per unit and did not attribute any value to the site improvements. The appraiser testified that the improvements “had limited value in the market place.” To the contrary, the municipality’s appraiser opined that the vacant lots were worth $27,000 each, with the site improvements adding $13,800 per unit ($12,000 of construction costs plus 15% entrepreneurial profit), for a total market value of $41,000 (rounded).

In rendering its decision, the Court made the following findings of note:

  1. The Court rejected numerous comparable sales by both appraisers, finding some too remote in time and others not supported by data.
  2. The Court found that a 15% down-ward adjustment for the age restriction was appropriate.
  3. The Court applied a 5% per year adjustment for the declining market.
  4. Other adjustments were made (see page 4 of the opinion for a more detailed analysis).

The main issue in dispute was how to value the site improvements. The municipality’s expert looked at the information contained in the bond, costs from other residential developments and the Marshall Valuation Service Manuel to determine the estimated costs of the site improvements. In the end, the appraiser determined that the 5 construction costs were $12,089 per unit, and added $1,800 (15%) for entrepreneurial profit. After hearing testimony, the Court adopted the cost number, but reduced the entrepreneurial profit to 7.5%.

The case provides a good road map or how to value vacant land with site improvements. It is important to note that the site improvements were not separately assessed, but their added value was taken into account when assessing the land.