Friday, September 11, 2015

Homeowners Should Still Be Allowed To Testify On The Value Of Their Property

Late last year, I hailed the Wisconsin Court of Appeals' decision in Mueller v. Harry Kaufmann Motorcars, Inc., 2015 WI App 8, 359 Wis. 2d 597, 859 N.W.2d 451 for reaffirming that property owners may testify on the actual value of their property to them at the time of sale and that such testimony is sufficient to establish benefit of bargain damages. This sounds like a bunch of legalese, so I'll break it down.

Let's say that you purchased a property with a "clean" Real Estate Condition Report for $250,000. After closing on your purchase and moving into your new home, you discover that the well only produces 2 gallons per minute of water, the septic leech bed has failed and the county is requiring you to replace it with a mound system, the neighbors are demanding that you tear down the pole barn that your sellers illegally erected last summer, and the basement leaks like a sieve. As a property owner in Wisconsin, you may testify that you would have paid no more than $200,000 for your property had the sellers told you the truth about all of these conditions. Your "benefit of bargain" damages are $50,000.00 because the property's value was $250,000 "as represented," but the property's actual value to you in its true condition was only $200,000. You didn't get what you paid for; you got cheated out of $50,000. A jury could award you $50,000 as the damages that you suffered as a result of the sellers' misrepresentations.

Oh, but wait a minute! There are rules governing testimony by lay (non-expert) witnesses in Wisconsin courts. In January of 2011, Wis. Stat. (Rule) s. 907.01 was revised to specify that opinion testimony by lay witnesses is limited to those opinions that are "[n]ot based on scientific, technical, or other specialized knowledge within the scope of a witness under s. 907.02(1)." In other words, the rules now specify that lay witnesses cannot give expert testimony. A homeowner cannot get up on the stand and opine that his home's foundation has been sinking since construction or that his home's roof is leaking due to improper installation of the valley flashing. A homeowner similarly cannot get up on the stand and opine that it is necessary to install eight helical piers to stabilize the foundation. Such opinions clearly fall on the expert testimony side of the ledger - they are based on the scientific, technical, or other specialized knowledge of an engineer or other professional. Courts generally require expert testimony on complex causation issues because such issues are outside of a typical juror's wheelhouse. Expert testimony only helps the jury if it comes from a real expert; not from a homeowner playing armchair engineer.

So does this rule change mean that homeowners can no longer testify on how much they would have paid for their property with full disclosure of all the defects? Isn't this expert testimony that should only be offered by a licensed and experienced appraiser?

While such an argument is facially appealing, it ignores the reality that homeowners are not testifying on the fair market value of their property. Fair market value is an expert opinion often supported by objective evidence such as comparable sales. Homeowners are testifying on the subjective value that they would have placed on their property at the time of sale with full disclosure of all of the defects. As I've said before, such subjective opinions of value need not be based on independent financial data. See D.L. Anderson's Lakeside Leisure Co., Inc. v. Anderson, 2008 WI 126, 314 Wis. 2d 560, 757 N.W.2d 803. Federal courts considering the equivalent federal rule allow property owners to offer lay opinions on property values. See, e.g.Christopher Phelps & Associates, LLC v. Galloway, 492 F.3d 532 (4th Cir. 2007).

The bottom line is that recent changes in Wisconsin's lay opinion rules did not bar homeowners from opining in court on the actual value of the property that they purchased. That being said, homeowners should expect their subjective valuation opinions to be greeted with skepticism by judges and juries. In my experience, it is usually better for defrauded homeowners to seek the cost of repairs as damages, especially when evidence of those damages is straightforward and supported by expert testimony.