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For respondent, Mr. Bollinger determined that the property
should earn $8.75 per square foot and be capitalized at a rate of
11 percent. While he shared Mr. Rexroth’s conclusion that the
property paid too much in local taxes, Mr. Bollinger did not
increase the capitalization rate on that account. Instead, he
adjusted the amount of anticipated future expenses. From
projected annual earnings of $96,250, he deducted expenses of
$28,272, and he deducted an additional $4,813 representing a 5-
percent vacancy rate. The resulting annual income of $63,165,
capitalized at an 11-percent rate, produced a value of $575,000.
Initially, we believe that the assumed vacancy rates
determined by each appraiser are unrealistic. Mr. Rexroth
forecast a vacancy rate of 15 percent over the entire forecast
period. He noted the building’s unusual configuration on its lot
and the fact that the area’s actual gross rental for the previous
5 years reflected an abnormally higher vacancy rate. The vacancy
rate used in Mr. Rexroth’s calculation is somewhat pessimistic.
The vacancy rate closest in time to the sale date is attributable
to the departure of a tax-preparation service from the building’s
largest unit. There is no reason to assume that the largest
office site would be the one most often vacant. Although
occasional vacancies could be expected, they would be more likely
to occur in the more numerous smaller units.
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