Real estate buyers who purchase property from banks sometimes get the property for a price that seems below market. Assessors frequently dismiss these sales as “bank sales” and therefore irrelevant for property tax valuation. However, these apparent discounts can be the result of actual distress or market influences, rather than because the bank was under duress to sell.

The Minnesota Tax Court squarely addressed this issue in Zephyr Group LLP v. County of Washington. The subject – a former Denny Hecker car dealership – was acquired by a financial institution after the bankruptcy of the previous owner. The property was then listed and marketed for almost four years with offering prices incrementally dropping from $1,800,000 to $600,000. The subject finally sold for $600,000. Since the assessed value was approximately $2,300,000, the buyer filed an appeal.

Subject Property
Subject Property

On appeal, the county disregarded the sale because it was “lender mediated.” The court however, disregarded the county’s analysis because of its failure to consider the sale.

A long standing rule in Minnesota Tax Court is that a sale of the subject property near the date of assessment is the “best indicator of value” and it should be “given great weight, especially when [it] was an arm’s length transaction.”

Nonetheless, the tax court is always cautious to use only the sale price of the subject, because “one sale does not make a market” and other evidence may show that the sale price is above or below market.

In Zephyr, the court found that the subject was an arms’ length transaction, because it was sufficiently exposed to the market, sold between two unrelated parties, and the lender was not under any regulatory or other pressure to sell for a below market. Because it was arms’ length and took place near the date of assessment, it was the best indicator of value.

Accordingly, a bank sale can be an arms’ length, market transaction; and therefore, the best indicator of value entitled to great weight in property tax valuation.