Real estate brokers are permitted testify about the fair market value of land being condemned by the Department of Transportation, the North Carolina Supreme Court has ruled in a decision that would appear to open the door to brokers testifying about land values in other types of cases as well.
The defendants in the case argue that they are entitled to more compensation for land they owned, part of which the DOT took for a highway project. At trial, they sought to use an expert witness, licensed real estate broker James Collins, to testify about the fair market value of the land, which had been part of an apartment complex in Greensboro. The DOT had deposited $276,000 in compensation; Collins prepared an expert report estimating that the proper amount of compensation was $3.734 million.
The trial judge excluded Collins’ report based on a state statute regulating real estate brokers’ ability to charge a fee for their opinions. The law distinguishes licensed brokers, who are allowed to provide estimates of the probable selling price of real property, from licensed appraisers, who are allowed to provide estimates of the value of a property.
Although the landowners ultimately qualified a different expert who offered a similar, but slightly lower, opinion about the land’s fair market value, a jury awarded them just $350,000. The owners appealed, contending that Collins should have been allowed to offer his opinion at trial. The Court of Appeals unanimously affirmed the trial court’s ruling, and the Supreme Court granted a petition for discretionary review.
Chief Justice Mark Martin, writing for a unanimous court in a March 2 opinion, said that both the trial court and the Court of Appeals had misunderstood the scope of the statute.
“The authority of a broker (or of anyone else) to testify as an expert in court, and thus to prepare an expert report, does not come from [the statutes regulating brokers] in the first place,” Martin wrote. “That authority instead comes from Rule of Evidence 702 and the cases that set out the standard for admission of expert testimony under that rule. Any person who can qualify as an expert under that standard [can] testify without having to invoke any other source of authority. Meeting that standard is both necessary and sufficient.”
The court went to conclude that the exclusion of Collins’ testimony likely influenced the size of the jury’s verdict, and that the landowners were thus entitled to a new trial.
Martin elucidated the difference between “probable selling price” and “fair market value,” which under ordinary circumstances might seem like the same thing. But when the government takes part of a tract of land, damages are determined by calculating the difference between the fair market value of the entire tract of land before the taking and the fair market value of the remaining tract of land after the taking. Calculating such values is conceptually distinct from calculating the price that might be agreed upon between a willing seller and willing buyer, Martin said.
Patrick Kane, Bruce Ashley, Kip Nelson, and Matt Leerberg of Smith Moore Leatherwood represent Mission Battleground Park. Kane said that in his clients’ case, the DOT’s taking of a part of the parcel reduced the fair market value of the land they were left with, and that this damage formed the core of Collins’s estimate.
Kane added that while he had not extensively considered the case’s wider application, he did think that it would likely be relevant in other areas of the law.
“It might be impactful in bankruptcy proceedings, equitable distribution proceedings—anything that would require evidence of fair market value of real property this ruling would seem to apply to,” Kane said. “I would think that based on the way the Supreme Court interpreted the statute, it would not prohibit a broker from testifying about fair market value in other proceedings outside of condemnation.”
Hilda Burnett-Baker and Phyllis Turner represented the DOT.