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of those properties), Parker valued the Property by capitalizing
its earnings. He estimated the Property's net annual operating
income to be $51,000 ($3 per square foot rental rate times a
gross building area of 16,994 square feet). Using a
capitalization rate of 12.2 percent, he valued the Property at
$418,000.
After considering all 3 approaches, Parker finally settled
on a value for the Property of $420,000.
We think that Parker's report contains several flaws which
caused him to value the Property incorrectly. Among other
things, Parker neglected to include the 2,510 square-foot paint
and body shop in his estimate of annual net operating income
under the capitalization-of-earnings approach. Inclusion would
necessarily have increased net operating income and, therefore,
the FMV of the Property. Furthermore, Parker made no size
adjustments for any of the vacant land sales, even though 5 out
of the 6 parcels were larger than the Property. We believe that
size adjustments should have been made in valuing the Property;
Aguilar and Lambert agreed that smaller parcels generally sell
for a higher price per square foot than larger parcels. In
addition, Parker made no market change and time adjustments for
Improved Sale Nos. 2 and 3, which occurred on November 11, 1988,
and January 23, 1990, respectively. We conclude that Parker's
use of Improved Sales Nos. 2 and 3 without any adjustment for
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