The North Carolina Court of Appeals issued a reminder to real estate litigators earlier this month: If you’re going to use a real estate broker as an expert witness, make sure they don’t testify about the “fair market value” of a property.
Unfortunately, that’s a tip that was overlooked by attorneys representing the owners of a Greensboro apartment complex in a lawsuit filed by the North Carolina Department of Transportation.
NCDOT condemned a portion of the property owned by LAT Battleground Park L.L.C. in 2013 to move two lanes of Drawbridge Road in order to make way for construction of the Greensboro Urban Loop. NCDOT set aside $276,000 to pay for the condemned property. But that was far less than what LAT Battleground said it was owed. The L.L.C. maintained the construction project knocked more than $3 million off the value of the Landmark apartment complex.
NCDOT sued to obtain a determination of just compensation due to LAT Battleground.
To support its claim that it was owed much more than what NCDOT was offering, LAT Battleground brought in real estate broker James Collins to conduct an assessment. Collins prepared a 124-page report, which found that the fair price for Landmark before the taking was $15.34 million. Collins’ report said the price had fallen to $11.6 million after the taking — a difference of $3.7 million.
Here’s where Collins made a mistake. The report he drafted repeatedly referred to the “fair market valuation” of the property. But under North Carolina law, licensed real estate brokers may only provide testimony on property prices and comparative market analysis. Only a licensed appraiser can testify about a property’s fair market value.
That prompted the trial judge to exclude Collins’ report from the jury trial. Judge Richard Gottlieb decided Collins could still testify, but he was limited to offering his opinion on sales and leasing prices for the property.
That limitation was enough for LAT Battleground’s attorneys from Smith Moore Leatherwood to decide not to call Collins to testify at all. Instead, they relied on the testimony of Michael Clapp, a certified appraiser. Clapp told the jury that the property’s fair market value after the taking had dropped by $3.2 million.
LAT Battleground tried to convince the Court of Appeals that Collins’ report should have been admitted. But its argument cut no ice with the three-judge panel. The report was out of bounds.
Leigh “Bo” Rodenbough, a real estate litigator with Brooks, Pierce, McLendon, Humphrey & Leonard in Greensboro, said it can be a challenge to make sure real estate brokers don’t go beyond their expertise when testifying.
“You have to carefully phrase your questions and make sure you and the witness are phrasing everything in terms of selling price rather than fair market value,” Rodenbough said. “The statute is very clear that real estate brokers cannot testify about fair market value. The best brokers are aware of that and will not answer questions that mention fair market value.”
From LAT Battleground’s perspective, the construction project launched by NCDOT came as a major blow to its business.
The Landmark apartment complex LAT Battleground purchased for $14.8 million routinely cited its seclusion as a key selling point. The 240-unit complex was described as being “tucked away” from the road and situated “in the woods” on 32.76 acres.
But the highway construction eliminated the wooded buffer in front of the property. In place of the buffer stood a 35-foot noise wall on Drawbridge Parkway. Overhead was an elevated six-lane highway running at an angle to the property’s entrance.
Court records say LAT Battleground bought the property with full knowledge of the looming condemnation to make way for the relocated Drawbridge Parkway.
However, all of the changes certainly had an effect on the value of the property. And LAT Battleground got far less than the company wanted to make up for the loss it took on the property.
Following a jury trial last year, LAT Battleground was awarded $350,000 in compensation, an order of magnitude lower than the $3 million the company said it was owed.
LAT Battleground didn’t fare any better on appeal. The Court of Appeals handed the company a resounding loss.
The appeals court rejected its argument supporting the admission of the Collins report. But the judges also dismissed LAT Battleground’s effort to present a sound and noise demonstration by an acoustical expert the company hired.
The appeals court determined the trial court had not abused its discretion by rejecting the presentation of Dr. Noral Stewart because the demonstration was to feature “pink noise” rather than highway sounds.
The appeals court also rejected LAT Battleground’s claim that it should have received a new trial after one of the jurors was found to have brought outside information into the deliberations.
Patrick Kane, a Smith Moore Leatherwood attorney representing LAT Battleground, testified that Juror No. 6 told him after the trial that he had told his fellow jurors that NCDOT was spending “millions of dollars” to construct the noise barrier walls. Juror No. 6 was a civil engineer who has consulted with NCDOT on other road construction projects.
The trial court ruled that Juror No. 6’s statement was “general, vague and related to a tangential matter. But LAT Battleground argued the statement could have affected the jury’s vote.
The appeals court again said the trial court got it right.
Writing for the three-judge panel, Judge John Tyson said Juror No. 6’s statement was not prejudicial “extraneous information” of the kind to warrant a new trial.
“Jurors do not leave their general opinions, knowledge and life experiences at the door of the courthouse,” Tyson said.
The appeals court also rejected LAT Battleground’s claim that the jury had received an improper instruction prior to deliberating the case.
None of LAT Battleground’s attorneys from Smith Moore Leatherwood responded to requests for comment.
Brookes Pierce’s Rodenbough said real estate brokers can provide useful testimony, so long as they avoid making statements about fair market value.
Rodenbough, who once represented the original owners of the Landmark apartment complex, said he has frequently hired brokers to testify because they tend to give a higher dollar estimate for a property’s price than an appraiser might.
“The Court of Appeals and the trial court got it right,” Rodenbough said. “They didn’t say you can’t use a broker. You have just got to make sure the questions you ask and the responses you receive speak in terms of selling price.”
Rodenbough said he once had a broker on the stand in a case he was handling, when his opposing counsel asked about a property’s fair market value.
“Without any prompting from me, he told the attorney he could only discuss selling price,” Rodenbough said. “I knew at that point, I’d gotten the right broker.”
The 20-page opinion is North Carolina Department of Transportation v. Mission Battleground Park, DST (Lawyers Weekly No. 011-305-16, 20 pp.).
Follow Jeff Jeffrey on Twitter @NCLWJeffrey.