Estate of Charles a. Boratello, Deceased, C. Norman Borgatello and Josephine E. Donnelly, Co-Executors, and C. Norman Borgatello, Successor Trustee to the Charles A. Borgatello Living Trust - Page 15

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            Holden's and Mr. Marx's bottom line valuations.5  The income                               
            method, on the other hand, is embraced by both Mr. Marx and Mr.                            
            Holden and dominates their analyses.  Because the parties' main                            
            focus is on the income method of valuing MVN and MVS, our focus,                           
            too, will be on the income valuation method.                                               

            5     With respect to the cost approach, the estate's expert said                          
            the following:                                                                             
                  The Cost Approach to value is an indicator for new or                                
                  proposed improvements, however, older improvements,                                  
                  such as the subject are more difficult to analyze.  The                              
                  most important factor in appraising older properties is                              
                  the estimate of depreciation.  Although great care is                                
                  taken in this analysis, it is difficult for the                                      
                  Appraiser to truly and accurately estimate the value                                 
                  losses by depreciation.  This is mainly due to the lack                              
                  of full knowledge of the infrastructure of a building.                               
                  You cannot see into the walls and many areas are                                     
                  inaccessible.  Therefore, it is difficult to determine                               
                  the true condition of all building components.  This                                 
                  weakens the support for the depreciation estimate.  The                              
                  typical purchaser does not generally use this approach                               
                  to make an investment decision.  * * *  Also, there is                               
                  a lack of * * * [comparable] land sales.  This makes                                 
                  the analysis for the land value weak.  Therefore, this                               
                  approach is given least weight in support of the final                               
                  estimate of value.                                                                   
            As for the sales comparison approach, we are concerned about the                           
            lack of suitable comparables in the Monecito-Santa Barbara area                            
            upon which to base any meaningful analysis.  Mr. Holden echoed                             
            this concern in his report, stating that "Due to the varying                               
            characteristics of the sales data, direct market comparison [as a                          
            method to value MVN and MVS] is weak."  Under the circumstances                            
            of the instant case, the sales comparison approach is unreliable.                          
            This unreliability is reflected in Mr. Holden's report where he                            
            abandons his cost approach and sales comparison analyses and                               
            adopts whole hog his conclusions from his discounted cash-flow                             
            analysis as the fair market value of MVN and MVS.                                          

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Last modified: May 25, 2011