In The State of Texas v. Audie Gray Family L.P. (No. 14-20-00206-CV), the Houston Court of Appeals [14th] considered whether a trial court abused its discretion in admitting expert testimony regarding the value of the property offered by the property owner pursuant to the “Property Owner Rule.”

Gray bought just over 20 acres of land with frontage on Texas Highway 36 with the intention of putting a boat and RV storage facility on the property. He paid $13,642 per acre, or $275,000. The plat for the property clearly showed a TXDOT right-of-way on part of the property adjacent to the highway. Gray did not build on that part of the property, but he did build a gravel road and put in electrical connection. Gray also put two small billboards on the right-of-way. He did not connect the property to any public water or wastewater systems. Thereafter the state filed a condemnation proceeding seeking to condemn a 1.89-acre parcel, leaving a remainder of more than 18.26 acrews. At the time of the condemnation, Gray had a storage business on the remainder and rented about half an acre to a farmer for agricultural use.

Special commissioners assessed $118,127 in damages. Both parties objected. Gray did not retain an expert for trial, but relied on his uncle, a partner in the business, under the Property Owner Rule. This rule permits an owner to testify regarding the value of the owner’s property, but such testimony remains subject to the same requirements as any other opinion evidence (i.e., TRE Rule 701). Owner testimony must likewise be based on objective measures of market value, “not the value of the property to the owner, the intrinsic value, or some speculative value of the property” (citations omitted). The trial court permitted his testimony over the state’s objection. At trial the uncle gave two opinions of value, one based on the income approach, the other on the comparable sales approach. Under either approach, the uncle valued the property at about six times more than the state’s expert. The jury awarded compensation to Gray of $236,700, about halfway between Gray’s value and the state’s. The state appealed.

The court of appeals reversed. The state first argued that the trial court abused its discretion in denying its motion to exclude the testimony of Gray’s uncle. Under State v. Central Expressway Sign Associates, 302 S.W.3d 866 (Tex. 2009), business income from a property may only “be considered in a condemnation proceeding in two situations: (1) when the taking, damaging, or destruction of property causes a material and substantial interference with access to one’s property; and (2) when only a part of the land has been taken, so that lost profits may demonstrate the effect on market value of the remaining land and improvements.” Applying this test, the court of appeals found that the trial court abused its discretion in allowing the uncle’s opinion testimony. First, the remainder of Gray’s property may still be accessed using Highway 36, so the first prong fails. With respect to the second prong, Gray did not claim damage to the remainder from the condemnation. Thus, the trial court erred in denying the state’s motion to exclude the uncle’s income approach analysis.

The state’s second issue involved the propriety of the uncle’s sales comparison approach to the value. It argued that the testimony relied on a “value to me” measure of market value rather than any actual comparable sales appropriately adjusted. The court of appeals agreed, finding that the uncle’s testimony centered on his personal preferences for the property, not what a willing buyer would pay a willing seller in an arm’s length transaction. Finally, the court of appeals ruled that the trial court’s failure to exclude the impermissible testimony probably led to an improper judgment in light of the vast disparity between the jury award (which clearly “split the baby”) and the state’s evidence of market value. The court of appeals remanded to the trial court for a new trial.

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