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CORE Electric Cooperative v. Freund Investments, LLC.

2022 COA 63. No. 21CA0574.  Eminent Domain—Condemnation—Property Valuation Methods—CRE 803.

June 14, 2022

CORE Electric Cooperative (CORE) filed a petition in condemnation to acquire an easement over property owned by Freund Investments, LLC (Freund) (the Property). The parties agreed that the highest and best use of the Property was to divide it into residential lots, and they stipulated to CORE’s immediate possession of the land subject to the easements. The case proceeded to a valuation determination. In determining the Property’s fair market value, Freund’s appraiser Owen used the sales comparison approach and the subdivision development valuation methods. Owen’s final estimation for just compensation was $300,000, the median value of the two valuation methods. CORE filed a motion in limine to exclude Owen’s expert opinion and appraisal report, arguing that his appraisal methodology was inadmissible. The court found the subdivision development method inadmissible but the sales comparison approach admissible. Before trial, CORE objected to admission of the opinion because Owen did not communicate directly with the buyer or seller of the comparable sales he used as required by CRS § 38-1-118. The court found that the value of the sales would be admissible under CRE 803(8), the public records exception, because Owen confirmed the prices with the assessor’s records and cross-checked them with the clerk and recorder records. But the court excluded the sales as inadmissible under CRS § 38-1-118. As a result, Owen’s trial testimony was limited to his valuation of the Property using the comparable sales approach based on the one comparable sale he had verified with the buyer. The jury awarded Freund $33,300 in damages for the condemned property and $50,000 in damages to the residue.

On appeal, Freund argued that the trial court erred by finding Owen’s valuation using the subdivision development method inadmissible because it was not too speculative and his methodology went to the weight of his testimony, not the admissibility. Colorado Supreme Court decisions generally prohibit use of the subdivision development valuation method to determine the value of property that has not been subdivided. Here, at the time of condemnation, the Property was undeveloped land on which no measures had been taken to prepare for subdivided lots, and there was no evidence of a time frame for commencement of any work. Owen valued the Property by dividing it into 44 hypothetical residential lots, estimated the value of the individual lots, and then added the estimated values of all the lots sold over a 10- and 11-year period with an annual inflation rate of 3%. He then deducted costs associated with developing the Property based on a current market estimate. Therefore, the valuation of hypothetical lots within a hypothetical subdivision was highly speculative, even if Owen’s valuation was based on easily ascertainable market data. Accordingly, the trial court did not err by finding Owen’s valuation using the subdivision development method inadmissible.

Freund also argued that the trial court erred by excluding evidence of the unverified comparable sales because the comparable sales prices were admissible under the CRE 803(8) and (14) hearsay exceptions. The hearsay exceptions apply to the admission of real property values in a condemnation case. Accordingly, the trial court erred by excluding evidence of the comparable sales that Owen did not directly verify with the buyer or seller based on its erroneous finding that comparable sales data in a condemnation case are only admissible under CRS § 38-1-118. However, any error was harmless because (1) excluding comparable sales offered to support Owen’s estimated values of the Property did not disadvantage Freund, (2) it is doubtful that the excluded comparable sales would have bolstered Owen’s opinion about the percentage loss of value, and (3) the jury’s damages award for the residue suggests that Owen’s opinion that there was damage to the residue was persuasive.

The judgment was affirmed.

Official Colorado Court of Appeals proceedings can be found at the Colorado Court of Appeals website.

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