City of Harlingen v. Sharboneau – Case Brief Summary (Texas)

City of Harlingen v. Sharboneau, 48 S.W.3d 177, 182 (Tex. 2001) involved the condemnation of a 10-acre tract of land to be used for a city park.

Before trial, the parties stipulated that the highest and best use for the land was a residential subdivision. Id. At trial, the landowners' expert used the subdivision development method to appraise the condemned land. Id.

"This method values an undeveloped tract by calculating what a developer could expect to realize from sales of individual lots, taking into account the costs of development and discounting future revenues to present value." Id.

The analysis employed by the landowner's expert under the subdivision development method was complicated and complex. See id. at 180--81.

The city's expert in Sharboneau used the comparable-sales method of appraisal to determine the land's value. Id. The city's expert offered evidence of three comparable land sales that were suitable for residential development. Id.

The city's expert determined the value of the condemned property after making adjustments to the three comparable properties to compensate for their varying characteristics. Id.

The Sharboneau court explained that the subdivision development method is distinct from the comparable sales approach. Id. at 183--84.

"Although subdivision development analysis requires the appraiser to examine the market for ready-to-build lots, such properties are not comparable to the larger, unsubdivided property actually being appraised.

The court also recognized that "courts have long favored the comparable sales approach when determining the market value of real property." Id. at 182.

The court continued:

"If the goal of an appraisal is to ascertain market value, then logically there can be no better guide than the prices that willing buyers and sellers actually negotiate in the relevant market. Under a comparable sales analysis, the appraiser finds data for sales of similar property, then makes upward or downward adjustments to these sales prices based on differences in the subject property." Id.

Ultimately, the Sharboneau court recognized that the subdivision development method may be a valid appraisal methodology for undeveloped land. Id. at 186.

However, the court held the subdivision development method could not serve as a basis for the judgment in that case because the expert's opinion "did not demonstrate what a willing buyer would pay to a willing seller in the relevant market"; thus it was not reliable or relevant. Id.

The Texas Supreme Court determined that an expert's testimony on the fair market value of a piece of undeveloped real property was not competent. Id. at 185.

The court noted that the expert's methodology required "more than a dozen analytical steps, most involving assumptions and estimates" and "failed to account for basic marketplace realities," including marketplace characteristics, "unexpected competition," political forces, "economic stagnation," and "other risks." Id. at 184-85.