Real estate buyers who purchase property from banks sometimes get the property for a price that seems below market. Assessors frequently dismiss these sales as “bank sales” and therefore irrelevant for property tax valuation. However, these apparent discounts can be the result of actual distress or market influences, rather than because the bank was under duress to sell.

The Minnesota Tax Court squarely addressed this issue in Zephyr Group LLP v. County of Washington. The subject – a former Denny Hecker car dealership – was acquired by a financial institution after the bankruptcy of the previous owner. The property was then listed and marketed for almost four years with offering prices incrementally dropping from $1,800,000 to $600,000. The subject finally sold for $600,000. Since the assessed value was approximately $2,300,000, the buyer filed an appeal.

Subject Property
Subject Property

On appeal, the county disregarded the sale because it was “lender mediated.” The court however, disregarded the county’s analysis because of its failure to consider the sale.

A long standing rule in Minnesota Tax Court is that a sale of the subject property near the date of assessment is the “best indicator of value” and it should be “given great weight, especially when [it] was an arm’s length transaction.”

Nonetheless, the tax court is always cautious to use only the sale price of the subject, because “one sale does not make a market” and other evidence may show that the sale price is above or below market.

In Zephyr, the court found that the subject was an arms’ length transaction, because it was sufficiently exposed to the market, sold between two unrelated parties, and the lender was not under any regulatory or other pressure to sell for a below market. Because it was arms’ length and took place near the date of assessment, it was the best indicator of value.

Accordingly, a bank sale can be an arms’ length, market transaction; and therefore, the best indicator of value entitled to great weight in property tax valuation.


Home improvement retailer, Menard’s, successfully lowered the value of its Moorhead store in tax court. When it pressed its position based only on sales of similar properties, the court replied that valuation is not that narrowly focused.  The appeal covered years 2011 through 2014 and the original value was $11,200,000 for each year. At tax court, Menard’s sought a value as of $4,000,000. The tax court’s final value decision was as follows:

Appraisal Year County Assessor County’s Appraiser (Vergin) Menard’s Appraiser (MaRous) Tax Court Order Tax Court Amended Order
2011 $11,200,000 $12,000,000 $4,000,000 $7,432,100 $7,516,600
2012 $11,200,000 $12,300,000 $4,000,000 $7,585,800 $7,681,300
2013 $11,200,000 $12,500,000 $4,000,000 $7,219,000 $7,331,300
2014 $11,200,000 $12,700,000 $4,000,000 $7,393,600 $7,556,200

Menard’s appealed the tax court’s decision because it wanted the Minnesota supreme court to rule that only the sales comparison approach should have been considered, instead of the sales comparison and cost approaches to value.

Menard's Moorehead - Entrance

The court has long held that review of the tax court’s decisions is very limited and it will only overturn a valuation if is clearly erroneous. Menard’s contended that the tax court’s job was done when it determined that the sales comparison approach provided a reliable indicator of market value. However, the court has already ruled that approach out when it said some years ago,

“appraisal is an inexact valuation determination” and an “estimate of value”

Lewis & Harris v. Cty. of Hennepin, 516 N.W.2d 177, 180 (Minn. 1994) (emphasis added). The court has also stated that whenever possible the tax court should apply at least two of the approaches to value, and value indications derived can serve as useful checks on each other. Overriding weight can be given to one approach over another and the tax court has the discretion to determine what weight it will assign to each approach.

Finally, the court emphasizes that none of its decisions narrow the view of the inexact science of real estate appraisal to such a degree. As a result, for property tax valuation, the methodology should try to avoid being so narrowly focused.

The court also weighed in on the highest and best use determination and the depreciation analysis for the Menard’s property. If interested in the finer points of the valuation issues, here is the full November 9, 2016 decision for Menard, Inc. v. County of Clay.