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Combination of Sales and Income Approaches in the Valuation of Property
© 2004 National Legal Research Group, Inc.
MONTANA: In re Marriage of Baide, 323 Mont. 104, 99 P.3d 178 (2004).
The trial court erred by using a combination of the comparable sales approach and the income approach to value a commercial condominium.
Among the marital assets distributed by the court in the parties' divorce proceedings was a commercial condominium. The property was owned by the husband and was leased exclusively to his business, of which he was the sole shareholder. The trial court awarded the property to the husband at a value of $280,000, as found by a realtor based upon a comparable sales approach. The court then added an additional $130,000 to the value of the property based upon an income approach. By combining these two methods of valuation, the court below assigned a value of $410,000 to the condominium. The husband alleged that the use of a combined valuation was error. On appeal, the Montana Supreme Court agreed and reversed the trial court's decision.
The high court pointed out that there are three methods commonly used to value real property: the cost approach, the market data or comparable sales approach, and the income approach. It noted that the cost approach involves estimating the depreciated cost of reproducing or replacing the building and site improvements, that the market data or comparable sales approach involves the compilation of sales and offerings of properties which are comparable to the property being appraised, and that the income approach measures the present worth of the future benefits of the property by the capitalization of the net income stream over the remaining economic life of the building. The court then agreed with the husband's contention that the lower court erred by combining two methods for valuation. By combining the two methods, the market data or comparable sales approach and the income approach, it assigned two values to the one condominium. Employment of this combination method was not supportable given the record and constituted an abuse of discretion.
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