Section 23A

Citation: Section 23A
Parent Document: BLT Burger DC, LLC v. Norvin 1301 CT, LLC, 86 A.3d 1139 (2014)
Jurisdiction: DC (municipal)
Effective Date: 2014-03-13
Original Source: https://www.courtlistener.com/opinion/2656505/blt-burger-dc-llc-v-norvin-1301-ct-llc/ ↗

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We elaborate below that, in valuing real property by using the “income”
method, appraisers rely on “stabilized annual net income,” Wolf, 597 A.2d at 1309,
meaning the owner‟s income after ordinary business expenses, including taxes and
insurance (as well as utilities, maintenance, and other ordinary costs). See
AMERICAN INSTITUTE OF REAL ESTATE APPRAISERS, THE APPRAISAL OF REAL
ESTATE 451, 457 (13th ed. 2008). The “net” figure is proper if only because a
landlord‟s receipt of taxes and insurance (or other operating expenses) from a
tenant, in addition to rent, reflects payments automatically passed on to third party
obligees, not money retained as earnings representing enhanced value of the
property. Therefore, by adding taxes and insurance payments to the rent to
establish the base figure for capitalizing income, Livingston relied on an inflated,
gross income figure that resulted in overvaluation. More specifically, to calculate
the $299,000 that served as the “net rent” basis for Livingston‟s capitalization, he
added together $192,000 for rent, $94,000 for real estate taxes, and $13,500 for
insurance (actually totaling $299,500). Had he properly limited “net rent” to the
$192,000 and applied his 5.25% capitalization rate, his value for 1317 would have
been approximately $3.7 million instead of $5.7 million.
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Wolf, 597 A.2d at 1307 (quoting AMERICAN INSTITUTE OF REAL ESTATE
APPRAISERS, THE APPRAISAL OF REAL ESTATE 272, 504-05 (8th ed. 1983)).
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