               IN THE SUPREME COURT OF IOWA
                              No. 05–1641

                         Filed January 23, 2009


SAM SOIFER, ESTATE OF BARBARA J. SOIFER, Deceased,
by SAM SOIFER and JOANN ROBINSON, Coexecutors,
and FRANCHISE REALTY INTERSTATE CORP.,

      Appellants,

vs.

FLOYD COUNTY BOARD OF REVIEW,

      Appellee.


      On review from the Iowa Court of Appeals.



      Appeal from the Iowa District Court for Floyd County, John S.

Mackey, Judge.



      Board of Review seeks further review of court of appeals’ decision

reversing district court’s order dismissing taxpayers’ appeal from

property tax assessments.      DECISION OF COURT OF APPEALS
VACATED. DISTRICT COURT JUDGMENT AFFIRMED.



      Judith M. O’Donohoe of Elwood, O’Donohoe, Stochl, Braun &

Churbuck, Charles City, for appellants.



      Bruce B. Green and Brett Ryan of Willson & Pechacek, P.L.C.,

Council Bluffs, and Kimberly L. Birch, Assistant County Attorney,

Charles City, for appellee.
                                            2

TERNUS, Chief Justice.

       This case involves taxpayers’ consolidated appeals from the

decisions of the appellee, Floyd County Board of Review, denying the

taxpayers’ objections to assessments of their property for tax purposes.

The    property      is    a   McDonald’s       fast-food   restaurant      located    in

Charles City, Iowa. It is owned by appellant, Franchise Realty Interstate

Corp., who leases it to appellants Sam and Barbara Soifer,1 McDonald’s
franchisees. The parties dispute the actual value of the property and the

necessity       of   using     franchise-to-franchise       sales    as    comparable

transactions in determining market value. The district court dismissed

the taxpayers’ appeals, ruling the assessed value of $352,990 in 2003,

2004, and 2005 was not excessive or inequitable.

       On appeal, the court of appeals reversed the district court and

reduced the assessed value to $230,000 for the years in question. In its

de novo review, the court of appeals found more convincing the

testimony of the taxpayers’ expert witnesses that the market value of the

property was far less than the assessed value.                   We granted further

review. Upon our review of the record, we agree with the district court

that the assessed value was not excessive or inequitable. Therefore, we

vacate the court of appeals’ decision and affirm the judgment of the

district court.

     I. General           Principles   of    Law     Applicable      to   Assessment
Proceedings.

       We start our discussion of this appeal with a review of the legal

concepts governing valuation of real estate for taxation purposes, as we

believe it is helpful to have these principles in mind before reviewing the

       1After the filing of this case, Barbara Soifer died, and her estate was substituted
as a party. To avoid unnecessarily complicating our discussion of this case, we will
refer to Barbara Soifer, rather than to her estate, as the appellant.
                                          3

background facts and prior proceedings.                  The relevant statutory

framework for the assessment and valuation of property is contained in

Iowa Code chapter 441. See Iowa Code ch. 441 (2005). “All property

subject to taxation shall be valued at its actual value . . . .”                   Id.

§ 441.21(1)(a). “Actual value” is “the fair and reasonable market value of

[the] property.” Id. § 441.21(1)(b).

       “Market value” is defined as the fair and reasonable
       exchange in the year in which the property is listed and
       valued between a willing buyer and a willing seller, neither
       being under any compulsion to buy or sell and each being
       familiar with all the facts relating to the particular property.

Id.   In determining market value, “[s]ales prices of the property or

comparable property in normal transactions reflecting market value, and

the probable availability or unavailability of persons interested in

purchasing the property, shall be taken into consideration.”2                Id.   The

statute also instructs that “abnormal transactions not reflecting market

value shall not be taken into account or shall be adjusted to eliminate

the effect of factors which distort market value.”              Id.   Although the

assessor may consider any factor that “would assist in determining the

fair and reasonable market value of the property,” the assessor may not
take into consideration “[s]pecial value or use value of the property to its


       2The  legislature has expressed a preference for valuations based on comparable
sales. Boekeloo v. Bd. of Review, 529 N.W.2d 275, 277 (Iowa 1995); accord Iowa Admin.
Code r. 701—71.5 (requiring county assessors to use “an analysis of comparable sales”
to determine “the actual value of commercial real estate”). Iowa Code section 441.21
provides that “[i]n the event market value of the property being assessed cannot be
readily established [through comparable sales], then the assessor may determine the
value of the property using the other uniform and recognized appraisal methods.” Iowa
Code § 441.21(2); see Carlon Co. v. Bd. of Review, 572 N.W.2d 146, 149–50 (Iowa 1997)
(“Thus these provisions mandate that the assessor must first attempt to determine fair
market value by using comparable sales. Failing this, the assessor may then resort to
the ‘other factors’ approach outlined in section 441.21(2).”). The parties in this case
agree the actual value of the subject property can be established using the comparable-
sales approach.
                                            4

present owner, and the good will or value of a business which uses the

property as distinguished from the value of the property as property.” Id.

§ 441.21(2).

       The Iowa Administrative Code requires an assessor to “classify and

value property according to its present use and not according to its

highest and best use.”3 Iowa Admin. Code r. 701––71.1(1). “[P]roperty
subject to a lease is taxed as a whole and measured by the value of its

fee.” Merle Hay Mall v. City of Des Moines Bd. of Review, 564 N.W.2d

419, 422 (Iowa 1997).

       A property owner who is dissatisfied with the county assessor’s

valuation may protest the assessment to the board of review. Iowa Code

§ 441.37(1). Among other grounds, the protest may be based on a claim

“[the] assessment is not equitable as compared with assessments of other

like property in the taxing district” or on a claim “the property is

assessed for more than the value authorized by law.” Id. § 441.37(1)(a),

(b).

       If the property owner is not content with the board’s disposition of

the protest, the taxpayer may appeal to the district court.                           Id.

§ 441.38(1).       Although the taxpayer is limited to the grounds raised

before the board, the taxpayer may introduce evidence in the district

court to sustain those grounds. Id. The district court hears the appeal

in equity and “determine[s] anew all questions arising before the board.”

Id. § 441.39.       There is no presumption “as to the correctness of the

valuation of assessment” from which the appeal is taken. Id.


       3Contrary    to this rule, the appraisers in this case, including the county
assessor, testified they valued the subject property at its highest and best use. Our
decision is not affected by the conflict between the controlling rule, focusing on present
use, and the experts’ opinions, focusing on highest and best use, because the witnesses
agreed the highest and best use for the property was its present use as a franchise
restaurant.
                                       5

      If the property owner “ ‘offers competent evidence by at least two

disinterested witnesses that the market value of the property is less than

the market value determined by the assessor,’ the burden shifts to the

board of review to uphold the assessed value.” Boekeloo v. Bd. of Review,

529 N.W.2d 275, 277 (Iowa 1995) (quoting Iowa Code § 441.21(3) (1993)).

If the taxpayer fails to offer competent evidence of two disinterested

witnesses, then the burden of persuasion remains with the taxpayer to
establish that the assessed valuation was excessive. Id. at 279; Foreman

& Clark of Iowa, Inc. v. Bd. of Review, 286 N.W.2d 169, 172 (Iowa 1979).

When a property owner claims the valuation was excessive, in addition to

proving the excessiveness of the board’s valuation, the property owner

must establish the correct valuation.        Heritage Cablevision v. Bd. of

Review, 457 N.W.2d 594, 598 (Iowa 1990); Iowa Code § 441.21(3).

      Having in mind this general introduction to the statutory scheme

governing property assessments and appeals from them, we turn now to

the facts of this case.

      II. Background Facts and Proceedings.

      Sam and Barbara Soifer own a franchise for a McDonald’s

restaurant located in Charles City, Iowa.       The building and the real
estate upon which it sits is owned by a McDonald’s company known as

Franchise Realty Interstate Corp.       The Soifers lease the property from

Franchise Realty, and under the agreement, are responsible for payment

of the property taxes on the parcel.

      The building on the property was constructed in 1978 and has

undergone periodic modifications, enlargements and updating since that

time. The property is located in a 100-year floodplain and was flooded in

1993, 1996, 1999, and 2004.            Due to the floodplain location, the

property insurance premium includes a $4000 surcharge. Although the
                                    6

restaurant is just off the main commercial street going through

Charles City known as Old Highway 218, it has no frontage on this

street. Moreover, in July 2000, the Avenue of the Saints, an interstate

highway, opened. This interstate bypasses Charles City, causing traffic

that would normally take Old Highway 218 through Charles City to travel

around Charles City on the new interstate. The rerouting of traffic has

caused a drop in business along Old Highway 218. The Soifers claim a
twenty-five-percent decrease in gross sales receipts since the opening of

the interstate, and an additional ten-percent drop since the opening of

another fast-food restaurant directly off the bypass exit.   Nonetheless,

the Soifers and their appraiser acknowledge this McDonald’s restaurant

continues to be a very viable establishment.

      In 2001, the county assessor raised the assessment on the

property from $356,000 to $399,000 after conducting a complete market

analysis to re-evaluate all commercial properties in the taxing district.

After an appeal, the Board reduced the assessed value to $368,650, and

in an out-of-court settlement, the valuation was reduced even further to

$351,780.   In 2002, the assessment was again raised, this time to

$352,990 for 2003 and 2004.       Upon the Soifers’ protest, the Board
upheld the assessment. During the pendency of an appeal of the 2002

assessment, another assessment occurred resulting in the same

assessed value of $352,990. The taxpayers unsuccessfully protested and

then appealed the subsequent assessment as well, and both appeals

were consolidated.

      In the consolidated appeals for tax years 2003, 2004, and 2005,

the Soifers challenged the assessments on two grounds.        First, they

asserted the actual value of their property was $250,000, not $352,990.

Second, they claimed the assessments of their property were not
                                       7

equitable when compared with the assessments of like properties in the

city.

        In the district court proceedings, the Soifers introduced the expert

testimony of an appraiser, Brett Blanchfield, and a local realtor, Connie

Parsons. Blanchfield placed the value of the property at $230,000, and

Parsons opined the value was between $193,000 and $217,500.                The

Board presented the testimony of the county assessor and Robert Ehler,
an appraiser who testified the reasonable market value of the property

was $381,000.

        The district court concluded all three experts’ opinions were

flawed.     Although Ehler, the Board’s appraiser, used franchise-to-

franchise sales as comparable transactions, which the court believed

more fairly and accurately reflected the fair market value of the subject

property, Ehler failed to adequately account for local market conditions

in evaluating these comparable sales.            The taxpayers’ appraiser,

Blanchfield, considered local market conditions, but did not use

franchise-to-franchise sales as his comparables. The court found that,

        [t]o obscure the fact that this real estate is being operated as
        a viable McDonald’s restaurant, a quite popular American
        establishment, would be to ignore reality. . . . It would be
        commonly inferred that a willing buyer would reasonably
        expect to pay, and a willing seller would reasonably expect to
        receive, a premium for such a sale.

The court concluded the best indicator of the fair market value of the

property was the figure to which the parties agreed in July 2002,

$351,780. The court noted the assessment of $352,990 fell between the

parties’ agreed-upon figure of $351,780 and a random appraisal done by

the Department of Revenue and Finance that established a market value
                                           8

of $353,390.4 The court concluded, therefore, that the assessment was
not excessive. The court also ruled the taxpayers had failed to prove the

assessment was inequitable, as they had not shown there were

comparable properties within the assessment jurisdiction assessed at a

lower ratio of assessed value to actual value.

       The taxpayers appealed, and their appeal was transferred to the

court of appeals. In its de novo review, the court of appeals rejected the

Board’s contention that the taxpayers had not offered “competent

evidence of two disinterested witnesses” because the taxpayers’ experts

had not used franchise-to-franchise sales.                  The court of appeals

concluded the Soifers had proved the Board’s assessments were

excessive and that the Board had not adequately rebutted this proof.

The court discounted the testimony of the Board’s appraiser for two

reasons: (1) Ehler had not quantified the adjustments he made to sales

of comparable properties, and (2) “Ehler’s use of only franchise-to-

franchise sales resulted in the prohibited inclusion of good will in the

valuation of the McDonald’s property.”                  We granted the Board’s

application for further review.

       III. Scope and Standard of Review.

       Our review of the district court’s decision is de novo.                 Riley v.

Iowa City Bd. of Review, 549 N.W.2d 289, 290 (Iowa 1996). Although we

give weight to the fact-findings of the trial court, particularly with respect




       4
         The department conducts random appraisals of commercial properties “to
determine the aggregate actual valuation of commercial real estate in each assessing
jurisdiction.” Iowa Admin. Code r. 701—71.12(3). This determination is part of a
process that culminates in an order by the director of revenue to equalize “the levels of
assessment of each class of property in the several assessing jurisdictions.” Iowa Code
§ 441.47. See generally Office of the Assessor v. Iowa Dep’t of Revenue, 417 N.W.2d 214
(Iowa 1987).
                                     9

to the credibility of the witnesses, we are not bound by those findings.

Iowa R. App. P. 6.14(6)(g).

     IV. Did Taxpayers Introduce Competent Evidence of Value
From Two Disinterested Witnesses?

      In order to establish which party has the burden of proof, we must
first determine whether the Soifers introduced “competent evidence by at

least two disinterested witnesses that the market value of the property is

less than the market value determined by the assessor.”         Iowa Code

§ 441.21(3).   There is no dispute that the taxpayers’ expert witnesses,

Blanchfield and Parsons, are disinterested. See Post-Newsweek Cable,

Inc. v. Bd. of Review, 497 N.W.2d 810, 813 (Iowa 1993) (defining a

“disinterested witness” as “[o]ne who has no right, claim, title, or legal

share in the cause or matter in issue, and who is lawfully competent to

testify”). The fighting issue is whether they offered “competent evidence.”

      The statutory requirement of “competent evidence” means “that the

testimony of the disinterested witnesses must comply with the statutory

scheme for property valuation for tax assessment purposes.” Boekeloo,

529 N.W.2d at 279. If it does not comport with the statute, the evidence

is not relevant and is, therefore, inadmissible. See Ross v. Bd. of Review,

417 N.W.2d 462, 465 (Iowa 1988); cf. Johnson v. Iowa Dist. Ct., 756

N.W.2d 845, 850 n.4 (Iowa 2008) (stating “[c]ompetent evidence means

admissible evidence”). Chapter 441 requires that the comparable-sales

approach be used unless market value cannot be established under this

method of valuation.     Iowa Code § 441.21(2).     As noted earlier, the

parties’ experts agreed the market value of the subject property could be

determined using the comparable-sales approach.

      We have held that market-value testimony by a taxpayer’s

witnesses under a comparable-sales approach is “competent” only if the
                                       10

properties upon which the witnesses based their opinions were

comparable. Boekeloo, 529 N.W.2d at 279; Bartlett & Co. Grain v. Bd. of

Review, 253 N.W.2d 86, 88 (Iowa 1977) (stating “if the taxpayers do not

so persuade the fact finder as to comparability, then the fact finder

cannot consider the sales prices of those other [properties] or the experts’

opinions predicated on [those sales prices,]” “in determining the [market

value] of the subject [property]”).     In addition, the property owner is
“required to offer a sufficient factual basis for the [witnesses’] opinions to

take them out of the realm of mere speculation and conjecture.” Riso v.

Pottawattamie Bd. of Review, 362 N.W.2d 513, 518 (Iowa 1985) (citing

Osborn v. Massey-Ferguson, Inc., 290 N.W.2d 893, 899 (Iowa 1980)). In

other words, “if any element of the ground of protest [is] not supported by

substantial evidence, the foundation would be insufficient to support an

expert opinion on the ultimate issue,” and consequently, the witness’s

testimony would not constitute “competent evidence.” Id.

        The issue of comparability has two facets: the property offered for

comparison must be “comparable” and the sale of that property must be

a “normal transaction.”       See Iowa Code § 441.21(1)(b) (referring to the

sales prices of “comparable property in normal transactions”); Equitable
Life Ins. Co. v. Bd. of Review, 281 N.W.2d 821, 823 (Iowa 1979) (stating

“sales price approach depends upon the availability of sales prices of the

property or comparable property in normal transactions”). To determine

whether other properties are sufficiently comparable to be used as a

basis    for   ascertaining   market   value   under   the   comparable-sales

approach, we have adopted the rule that the conditions with respect to

the other land must be “similar” to the property being assessed. Bartlett

& Co. Grain, 253 N.W.2d at 93. As we stated in Bartlett & Co. Grain,

“ ‘[s]imilar does not mean identical, but having a resemblance; and
                                         11

property may be similar . . . though each possess various points of

difference.’ ” Id. (quoting Redfield v. Iowa State Highway Comm’n, 251

Iowa 332, 341, 99 N.W.2d 413, 418 (1959)).

       Whether other property is sufficiently similar and its sale

sufficiently normal to be considered on the question of value is left to the

sound discretion of the trial court. See id. at 94. Factors that bear on

the competency of evidence of other sales include, with respect to the
property, its “[s]ize, use, location and character,” and, with respect to the

sale, its nature and timing.        Crozier v. Iowa-Ill. Gas & Elec. Co., 165

N.W.2d 833, 834 (Iowa 1969).5             When sales of other properties are

admitted, the market value of the assessed property must be adjusted to

account for differences between the comparable property and the

assessed property to the extent any differences would distort the market

value of the assessed property in the absence of such adjustments. Iowa

Code § 441.21(1)(b); Bartlett & Co. Grain, 253 N.W.2d at 88; Dowden v.

Dickinson County Bd. of Review, 338 N.W.2d 719, 723 (Iowa Ct. App.

1983). In addition, if the sale itself is an “abnormal transaction[],” the

market value must “be adjusted to eliminate the effect of factors which

distort market value.”       Iowa Code § 441.21(1)(b) (listing as distorting
factors “sales to immediate family of the seller, foreclosure or other forced

sales, contract sales, discounted purchase transactions or purchase of

adjoining land or other land to be operated as a unit”); accord Foreman &

Clark of Iowa, Inc., 286 N.W.2d at 172–73 (requiring adjustment for

       5Although Crozier is a condemnation case, the principles regarding valuation of

property for purposes of condemnation are to a great extent the same as those
governing valuation for assessment purposes. See generally Bartlett & Co. Grain, 253
N.W.2d at 93 (using definition of comparable property from condemnation case in tax
assessment case); Vine St. Corp. v. City of Council Bluffs, 220 N.W.2d 860, 862 (Iowa
1974) (holding evidence of assessed value of condemned property was relevant in
condemnation proceeding because both valuations were based on the “[f]air and
reasonable market value” of the property).
                                           12

abnormal contract sale).       If distorting sale factors or the points of

difference between the assessed property and the other property are not

quantifiable so as to permit the required adjustment, the other property

will not be considered comparable. See Bartlett & Co. Grain, 253 N.W.2d

at 94 (rejecting comparability of property that differed from subject

property “because of insufficient evidence to enable us to translate that

difference into dollars of value”).
      In the present case, the Board claims the only comparable

properties are those being used for a franchise restaurant and the only

sales that reflect the value of this use are sales of such properties to

sellers who plan to continue the franchise use. The Board argues that a

franchise property has “architectural appeal, that is, a design that the

general public recognizes.” It claims there is value in this architecture

that is captured only when the sale is a franchise-to-franchise sale. The

taxpayers contend for a broader interpretation of “similar,” one that

would include, as comparable properties, those used for restaurant

purposes in general, not only fast-food, franchise restaurants. They also

argue sales of franchise property for uses other than continuation of the

franchise are probative of the market value of franchise property and,
therefore, a competent basis for expert opinion.

      The first issue we must address is whether only other franchise

properties sufficiently resemble the Soifers’ property so as to provide an

adequate factual foundation for a comparable-sales valuation. It cannot

credibly be disputed that properties used for the operation of a fast-food,

franchise   restaurant    would,      in   the   absence   of   other   significant

differences, be most similar to the property being assessed in this case.

As noted above, property is to be valued based on its “present use,” Iowa

Admin. Code r. 701––71.1(1), and the present use of this property is a
                                    13

fast-food, franchise restaurant. But that fact does not necessarily mean

nonfranchise, one-of-a-kind restaurants are not “similar” to fast-food,

franchise restaurants. We find guidance in our Crozier opinion.

      In Crozier, the issue was the market value of a farm “used for

plaintiffs’ unique and financially rewarding wilderness hog farrowing

operation.”   165 N.W.2d at 834.     The property owner challenged the

defendant’s expert’s testimony regarding sales of comparable property,
asserting there was not sufficient similarity between the comparable

property and the subject farm because the comparable properties did not

have a wilderness hog farrowing operation. Id. We held the trial court

did not abuse its discretion in admitting evidence of these sales because

the comparable properties were farms that were similar “in size, use,

location and character” to the subject property, even though they did not

have a wilderness hog farrowing operation. Id. at 835. We considered

the absence of a wilderness hog farrowing operation on the comparable

properties a mere “difference in operation [that went] to the weight and

credibility of the sales as comparable rather than to their admissibility.”

Id.

      The Iowa Court of Appeals reached a similar conclusion in
concluding “the difference between a large anchor store space and small

retail shop space in a shopping mall” did not render a sale of shopping

mall space occupied by a series of smaller tenants inadmissible to

establish the value of space occupied by a large anchor tenant. Sears,

Roebuck & Co. v. Sieren, 460 N.W.2d 887, 890 (Iowa Ct. App. 1990).

Although the court rejected the taxpayer’s “argument that because of this

difference the properties are not comparable sales,” the court noted the

difference was “one factor to consider” in weighing the evidence. Id.
                                      14

      We think the approach followed in Iowa in admitting evidence of

comparable sales is accurately reflected in the following statement from a

sister state:    “[W]here the properties are reasonably similar, and a

qualified expert states his opinion that they are sufficiently comparable

for appraisal purposes, it is better to leave the dissimilarities to

examination and cross-examination than to exclude the testimony

altogether.”    Stewart v. Commonwealth, 337 S.W.2d 880, 884 (Ky. Ct.
App. 1960).     As this court has recently noted in a different context, a

requirement that evidence be competent does not mean that it must be

credible.      Johnson, 756 N.W.2d at 850 n.4.           Consequently, in

determining whether the Soifers offered competent testimony from two

disinterested    witnesses,   we   examine   whether   this   evidence   was

admissible on the question of value, not whether we find it persuasive.

      The expert testimony offered by the taxpayers in this case was

based on sales of properties that were used for restaurant purposes, but

not for fast-food, franchise restaurants. We conclude this evidence was

admissible and competent.          Because other properties need not be

identical to qualify as comparable, we think it follows that the use of

other properties need not be identical.        Here, a restaurant use is
sufficiently similar to a fast-food, franchise restaurant use to be

considered comparable. Nonetheless, a difference in use does affect the

persuasiveness of such evidence because “as differences increase the

weight to be given to the sale price of the other property must of course

be correspondingly reduced.”       Bartlett & Co. Grain, 253 N.W.2d at 93;

accord Crozier, 165 N.W.2d at 835. In other words, all else being equal,

evidence of sales of nonfranchise restaurant properties is not as

probative of the value of franchise-restaurant property as is evidence of

sales of other franchise-restaurant properties.
                                      15

      Blanchfield used four sales in his comparable-sales analysis. The

properties that were the subject of these sales were located in

Charles City, Fort Dodge, Storm Lake, and Marshalltown, Iowa, and all

had buildings originally used as franchise restaurants.        Three of the

properties were sold for use as nonfast-food, franchise restaurants and

the fourth property was sold to a bank that tore down the restaurant

building and replaced it with a bank building.           Blanchfield made
adjustments to the sales prices of these properties based on differences

in   access,   building   age   and    condition,   building   quality,   site

improvements, and land-to-building ratio. The adjusted sales prices of

these properties indicated a market value of the Soifers’ property within a

range of $197,966 to $244,178.        Stating he placed greatest weight on

sales one and four, Blanchfield concluded the subject property had a

value of $230,000. He testified his conclusion was supported by his cost

analysis that resulted in a market value of $232,000.

      Realtor Parsons also used a comparable-sales approach.              She

concluded the Soifers’ property had a market value of $217,500 based on

her analysis of sales of other commercial properties in Charles City.

Parsons testified to the differences between the other commercial
properties and the Soifers’ property and the impact of those differences

on the value of the subject real estate. She did not, however, explain the

calculations she employed to determine a market value nor did she

otherwise quantify any adjustments she made to the sales prices of the

other properties to reach a market value for the Soifers’ property.

      We conclude Blanchfield and Parsons complied with the statutory

scheme for property valuation for tax assessment purposes in offering

opinions on the value of the Soifers’ property based on the comparable-

sales approach and that the comparable properties upon which they
                                        16

relied were sufficiently similar to support admission of their testimony.

Because     the     taxpayers    introduced     competent     evidence   by    two

disinterested witnesses that the market value of the subject property is

less than the market value determined by the assessor, the burden shifts

to the Board to uphold the assessed value. Boekeloo, 529 N.W.2d at 277.

      V. Did the Board Sustain Its Burden of Proof?

      Four witnesses gave opinions of the market value of the Soifers’
property. The Board called one expert, appraiser Ehler, and introduced

the testimony of the Floyd County assessor, Bruce Hovden.                      The

taxpayers presented two expert witnesses, appraiser Blanchfield and

realtor Parsons. For the reasons we now discuss, we find the Board’s

evidence more persuasive than that of the taxpayers. We will address

the testimony of each witness separately.

      A. Appraiser Ehler.            The Board presented testimony from

appraiser Robert Ehler that the assessed property had a market value of

$381,000.         Although   Ehler    made      value   calculations   using    the

comparable-sales, income and cost methods, he based his opinion on the

comparable-sales approach.         He relied on the sale of eight properties

used for fast-food, franchise restaurants sold to buyers who continued to
use the property for the same or another fast-food, franchise restaurant.

      1. Franchise-to-franchise sales.            The Soifers’ expert criticized

Ehler’s reliance on only franchise-to-franchise sales, asserting such sales

inappropriately included “some kind of intangible business value.” An

assessor can “consider intangibles in arriving at the actual value of the

taxable property” provided the intangibles specified in section 441.21(2)

are not considered. Merle Hay Mall, 564 N.W.2d at 423. As we noted

above,    section    441.21(2)   specifically    prohibits   the   assessor    from

considering “[s]pecial value or use value of the property to its owner, and
                                           17

the good will or value of a business which uses the property as

distinguished from the value of the property as property.”6 Iowa Code
§ 441.21(2). There is certainly a tension between valuing property based

on its present use and yet avoiding the inclusion of prohibited

intangibles. A review of some of our prior cases addressing this issue

illuminates where the fine line between these two concepts lies.

       In Heritage Cablevision v. Board of Review, 457 N.W.2d 594 (Iowa

1990), the taxpayer challenged an assessment of real property used for

the operation of a cable television system. The board’s expert had used

sales of cable television systems as the basis for his comparable-sales

valuation. Heritage Cablevision, 457 N.W.2d at 598. This court agreed

with the trial court’s observation that the value of the entire system

necessarily included nontaxable assets such as a franchise to operate,

the value of the business, and goodwill.              Id. Although the expert had

attempted     to   make     adjustments         for   the   inclusion   of   prohibited

intangibles in the sales prices of the comparable properties, we

       6We have adopted “a narrow interpretation of the special-use exclusion.”

Merle Hay Mall, 564 N.W.2d at 425.
       Special value or use of the property to its present owner means
       “sentiment, taste, or other factors, frequently subjective [which] give
       property peculiar value or use to its owner that it does not have to
       others.” “Features and fancies” added to a homestead for the personal
       delight of the owner but of no use or value to others are examples of
       special value or use that are not to be considered in valuation.
Riso, 362 N.W.2d at 516 (quoting Maytag Co. v. Partridge, 210 N.W.2d 584, 591 (Iowa
1973)). Thus, if improvements can be sold to and used by a purchaser, their value
should not be excluded. Merle Hay Mall, 564 N.W.2d at 425. Here, the configuration of
the building and its placement on the site give this property value for use as a fast-food
restaurant. This value is not peculiar to the present owner. It would also have use and
value to a purchaser of the property. See Equitable Life Ins. Co., 281 N.W.2d at 825
(rejecting taxpayer’s argument assessor had included special use or use value of the
property to its present owner in his valuation, concluding use of building by insurance
company was not unique and building “could readily be used by any large enterprise
desiring to house its home office under one roof”); Maytag, 210 N.W.2d at 591 (same).
Accordingly, “[s]pecial value or use value of the property to its owner” is not implicated
in this case. Iowa Code § 441.21(2).
                                     18

concluded his calculation of market value under the income and cost

approaches revealed that a much larger adjustment would have been

appropriate.   Id. at 599.    Therefore, we rejected the comparable-sales

component of the witness’s testimony. Id.

      In our subsequent Merle Hay Mall case, the taxpayer claimed the

assessor had inappropriately included intangible business value in his

assessment,    “such   as    the   worth   of   the   business   organization,
management, the assembled work force, working capital, and legal rights

such as trade names, franchises, and agreements, that have been

assembled to make a business a viable entity.” 564 N.W.2d at 423. We

disagreed with the taxpayer that a reduction in the valuation was

necessary to account for such intangibles and distinguished our Heritage

Cablevision case. Id. at 424. We noted that, with the exception of the

intangibles removed from valuation by statute, “intangibles may be

considered in valuing the real estate with which they are associated.” Id.

      This court addressed a similar issue in Maytag Co. v. Partridge,

210 N.W.2d 584 (Iowa 1973). Although the Maytag case concerned a tax

valuation of the Maytag plant under the other-factors approach, our

holding in that case is consistent with our resolution of the taxpayer
challenge in Merle Hay Mall.        210 N.W.2d at 590.       In Maytag, the

taxpayer argued that, in considering the use to which the subject

property was put, the assessor improperly included goodwill or value of

the business. Id. We rejected this argument stating:

      When an assessor considers the use being made of property,
      he is . . . recognizing the effect of the use upon the value of
      the property itself. He is not adding on separate items for
      good will, patents, or personnel.

Id.
                                    19

      Our holding in these cases is consistent with an early case in

which the taxpayer challenged the assessor’s valuation of an electric light

plant on the basis it included the value of the taxpayer’s franchise.

Lake City Elec. Light Co. v. McCrary, 132 Iowa 624, 625, 110 N.W. 19, 19

(1906).    Although we held this argument was essentially a claim of

excessive valuation that should have been made in an appeal to the

board of review, we offered the following observation:

      Indeed, we think that the existence of the franchise and the
      fact that the light plant was a going concern instead of a
      mere aggregation of dead material were matters which the
      assessor was entitled to consider in appraising the property,
      and that such valuation is in no manner inconsistent with
      the general proposition that the franchise as such is not a
      taxable item of property.

Id. at 626–27, 110 N.W. at 20; accord City Council v. Cedar Rapids & M.C.

Ry., 120 Iowa 259, 266, 94 N.W. 501, 503 (1903) (stating “we think that

the value of the franchise held by the corporation . . . is not the subject

of assessment under the statute as it exists; but we see no reason why

the fact that the railway is in successful operation, earning money for its

owners, may not properly be considered by the assessor in estimating its

value”).

      We think the fast-food restaurant property at issue here is similar

to the properties housing viable commercial enterprises assessed in our

Merle Hay Mall, Maytag, and Lake City Electric cases. Ehler testified the

business itself––including the prohibited intangibles of goodwill and the

value of the business using the property––is usually sold separately from

the real estate. Cf. Riso, 362 N.W.2d at 516–17 (holding percentage rent

used in income-approach valuation was not shown to be based on

goodwill   because   McDonald’s    and   Burger    King   “are   separately

compensated for the use of their name and other factors in franchise
                                    20

agreements”).    Moreover, according to Ehler, even when both the real

property and the business are sold in one transaction, a portion of the

purchase price is allocated to the nonreal estate assets.       He said the

sales he used were of real estate only.      He also pointed out that his

calculations of value under the income and cost methods supported his

comparable-sales figure. Ehler’s actual value under an income approach

was $850,000, and he testified the difference between this figure and the
$381,000 market value under the sales approach represented the

business value of the McDonald’s restaurant. See Post-Newsweek Cable,

Inc., 497 N.W.2d at 817 (stating difference between value determined

under income approach and much lower value determined under cost

approach suggested nontaxable assets were included in income-method

valuation). Ehler’s actual value using the cost approach was only $500

less than the value he calculated under the sales method, which, he

testified,   demonstrated   the   accuracy      of   the   adjustments   and

assumptions underlying his comparable-sales valuation.          We conclude

based on the record in this case that Ehler’s use of franchise-to-franchise

sales did not include prohibited intangibles.

       The taxpayers challenge Ehler’s use of franchise-to-franchise sales
for the additional reason that McDonald’s requires buyers of McDonald’s

properties to agree to a noncompete clause that prevents use of the

property for a fast-food franchise restaurant for twenty years. Therefore,

the taxpayers claim, the actual market value of this property is more

accurately reflected by sales of franchise properties to buyers who will

use the property for general restaurant purposes.          Such sales would

reflect a lower market value, argue the Soifers, because the McDonald’s

architecture and the fast-food set-up would have no value to such a

buyer.
                                        21

      While there is superficial appeal to this argument, valuing the

Soifers’ property as if it were not a viable McDonald’s would be contrary

to the principle that assessed property is valued based on its present

use, including any functioning commercial enterprise on the property. In

Riso, this court held that an assessor is “entitled to consider the use of

the [assessed] property as a going concern.” 362 N.W.2d at 517; accord

Maytag Co., 210 N.W.2d at 590; Lake City Elec. Light Co., 132 Iowa at
626–27, 110 N.W. at 20. As we stated in Maytag, “[w]hen an assessor

considers the use being made of property, he is merely following the rule

that he must consider conditions as they are.”            210 N.W.2d at 590

(rejecting an expert’s analysis that valued machinery in use in the

Maytag factory based on the used machinery market price).

      Our discussion in Riso is particularly enlightening because Riso

addressed the valuation of a McDonald’s property and a Burger King

property. 362 N.W.2d at 515. In Riso, the experts used cost and income

methods for valuation.         Id. at 516.   Under the income approach, the

assessor considered both the base rent paid by the McDonald’s and

Burger King lessees, as well as additional rent payments measured by a

percentage of gross sales over a certain figure.         Id. at 515–16.     The
district court had concluded the assessor could not rely on the

percentage rent because it constituted “special use or good will value of

the   property    that   was    precluded    from   consideration   by   section

441.21(2).”      Id. at 516.     This court disagreed and observed, “That

substantial revenues will be generated by any of the leading fast-food

restaurants of the kind involved here is no surprise. Those revenues are

largely a product of the use of the property in the contemplated manner.”

Id. at 517.      We concluded the assessor’s use of percentage rent in

determining value under the income method was appropriate because
                                    22

the percentage rent reflected the value of the property as a going

concern. Id.

      Similarly, here, franchise-to-franchise sales of similar properties

reflect the value of the property in its present use as a franchise

restaurant.    To eliminate such sales because McDonald’s insists on

noncompete clauses when selling its properties would ignore the

requirement that real estate be valued based on its present use.
      In addition, our cases do not support a reduction in market value

based on a property owner’s self-imposed restrictions. In Merle Hay Mall,

the taxpayer argued the assessor failed to consider the fact that no

willing buyer would offer full price for the mall property because it was

subject to a very unfavorable lease to Younkers, one of the anchor

tenants. 564 N.W.2d at 422. We pointed out that both the lessee’s and

lessor’s interests are included in the valuation and, while the lease was

unfavorable to the mall owner, it was very favorable to Younkers.        Id.

Therefore, we concluded, “the combined value of the parties’ interests . . .

remains the same.” Id. We held the assessor, who valued the property

under an income capitalization approach, “properly used the objective

rental income value of the Younkers store, rather than the actual lease
amount, to establish a valuation.” Id. at 423.

      We think a similar rationale applies even more forcefully here

where the restriction that potentially negatively impacts a sales price is

self-imposed. The property at issue in this case is a functional fast-food

restaurant. Objectively, in the absence of McDonald’s desire not to sell

to a competing business, the building would have value to a potential

buyer who desires to continue this use of the property. As already noted,

it is this going-concern value that our statute seeks to capture in a

comparable-sales analysis. It would be contrary to legislative intent to
                                     23

allow a taxpayer to circumvent the statutory scheme by voluntarily

eliminating buyers who would use the property in the same manner,

thereby artificially reducing the potential sales price of the property. For

this reason, we think Ehler’s use of franchise-to-franchise sales was

entirely proper notwithstanding limitations McDonald’s may choose to

impose when it sells the property.

      2. Adjustments for points of difference. A second criticism of
Ehler’s testimony has more merit. Ehler made adjustments to the sales

prices of his comparable properties to account for differences between

them and the appraised property, but could not describe the precise

adjustments he made.      His report, which was admitted into evidence,

also failed to quantify his adjustments, and he did not bring his working

papers with him when he testified.        The absence of evidence of the

specific adjustments made by Ehler makes an informed evaluation of the

credibility of Ehler’s comparable-sales valuation difficult.     If Ehler’s

opinion had been offered to support an actual value equal to his

valuation of $381,000, we would be more concerned about the precision

of his adjustments.     But because the Board adopted the assessor’s

valuation of $352,990, almost $30,000 less than Ehler’s valuation, there
is some margin for error in Ehler’s calculations.

      The witnesses appear to have agreed that one of the most

prominent factors that affected the value of the subject property was its

location some distance from the new bypass. The availability of buyers

who would be interested in purchasing a fast-food restaurant in this

location is an important factor in establishing market value. See Iowa

Code § 441.21(1)(b). Even if we assume, however, that Ehler made no

adjustment for this factor or an inadequate adjustment, his opinion still

substantiates the Board’s valuation.      Blanchfield, the Soifers’ expert,
                                    24

made a five-dollar per square foot adjustment in the sales price of one of

the comparable properties he used to account for the poor location of the

subject property on Old Highway 218. If we reduce Ehler’s per-square-

foot value for the subject property by the same five-dollar adjustment,

Ehler’s comparable-sales valuation is approximately $361,000, still well

above the assessed value of $352,990.       In addition, we find merit in

Ehler’s testimony that the similar value he calculated under the cost
approach validated the unspecified adjustments he made in arriving at a

value based on comparable sales. See Heritage Cablevision, 457 N.W.2d

at 598 (“The advantage of using multiple appraisal techniques lies

primarily in those instances where the differing techniques lead to

similar conclusions concerning market value and therefore tend to

support each other.”).       In summary, we think Ehler’s testimony

corroborates the Board’s valuation, notwithstanding his failure to specify

the adjustments he made to the sales prices of comparable properties.

        3. Timing of sales. Finally, Ehler’s opinion is also challenged on

the basis that the sales upon which he relied occurred between 1997 and

1999, prior to the assessment years at issue in this case. Notably, the

statute does not require that comparable sales occur within a certain
time period of the assessment year. Moreover, adjustments can be made

for changes in the market over time.      See Equitable Life Ins. Co., 281

N.W.2d at 826 (considering comparable sale that occurred six years prior

to year of assessment, noting adjustments in the sale price were made

“for time”). In the present case, Ehler testified he made no adjustment

for the timing of the comparable sales because he believed the market

had been relatively stable from the late 1990s through the appraisal

date.   The taxpayers introduced no evidence that the market was not

relatively stable during this period.    On balance, we do not find the
                                    25

timing of Ehler’s comparable sales to substantially detract from the

credibility of his valuation.

      B. County Assessor Hovden.          The county assessor testified

generally to his valuation of the property at $352,990. He also explained

that the Department of Revenue and Finance conducts random

appraisals to spot-check whether the valuations made by county

assessors reflect market value. Coincidentally, the Soifers’ property was
the subject of such a random appraisal by the department in the general

time frame at issue here. The department’s appraisal produced a market

value of $353,390, $400 higher than the county assessor’s valuation.

We think the department’s nearly identical valuation is persuasive

corroboration of the market value determined by the assessor.

      C. Appraiser Blanchfield.      There are several reasons we find

Blanchfield undervalued the Soifers’ property. Blanchfield used the sales

of four comparable properties as the basis for his $230,000 valuation.

He determined the price per square foot at which the properties sold and

then made adjustments to this square-foot value based on differences

between the comparable properties and the subject property.           This

process resulted in a per-square-foot value from a low of $49.05 based
on comparable one to highs of $59.50 based on comparable four and

$60.50 based on comparable three. Extrapolating from these square-foot

values, Blanchfield computed a market value of the subject property

within a range of $197,966 to $244,178.         Applying his professional

judgment and placing greatest weight on sales one and four, Blanchfield

formed the opinion that the value per square foot for the Soifers’ property

was $57, producing a market value of $230,000.

      These calculations resulted in an undervaluation of the Soifers’

property, however, due to an error in the square footage attributed to the
                                    26

building sold in sale four. The size of this building was overstated, which

caused Blanchfield to calculate a lower square-foot value and a

correspondingly lower market value for the subject property.         Ehler

testified that, had the correct square footage been used by Blanchfield,

the square-foot value of sale four would have been $84.01 rather than

$59.50, and the adjusted market value for the Soifers’ property based on

sale four would have been $340,000 rather than $240,000.           Clearly,
given the fact Blanchfield placed greatest reliance on sales one and four

in valuing the subject property, it is reasonable to conclude that, had he

used the correct square footage for comparable four, he would have

placed a much higher market value on the Soifers’ property.

      In addition, even using the corrected figures for sale four arguably

results in an undervaluation of the subject property because comparable

property four was not sold as a restaurant. Rather, the buyer tore down

the franchise-restaurant building that had operated as a McDonald’s and

replaced it with a bank. Thus, sale four did not reflect a present-use

value for the property because the buyer did not intend to use the

building on the property as a fast–food restaurant. Common sense tells

us the building on the property was, therefore, a liability that depressed
the sales price, not an asset as it would be if the property were

purchased with the intent of continuing the operation of a fast-food

restaurant.

      Similar factors cause us to discount the value of the other three

sales upon which Blanchfield relied. Sales one, two, and three were at

one time operated as a Hardee’s, a Kentucky Fried Chicken, and a

McDonald’s. None of these properties continued to be used as a fast–

food restaurant after their sale.    Therefore, the sales prices did not

completely capture the value of the properties in their present use.
                                    27

Accordingly, we conclude Blanchfield’s opinion based on comparable

sales understated the value of the Soifers’ property.

      Blanchfield’s cost approach valuation was also flawed.     The cost

approach is based on the principle that a purchaser would pay no more

for developed property than the cost of developing a new property. Under

this approach, an appraiser determines the cost of developing a new

property like the subject property and then applies a depreciation factor.
The factor of depreciation is the difference in value between a new

building and an old structure. Blanchfield used the Marshall and Swift

Valuation Services Guide to determine replacement cost.        Using this

guide, he arrived at a forty-three percent depreciation factor and an

ultimate determination of fair market value under the cost approach of

$232,000.

      The Board correctly points out that the county assessor is required

by law to use a state appraisal manual prepared by the director of the

department of revenue.     See Iowa Code § 421.17(17) (placing duty on

director “[t]o prepare and issue a state appraisal manual which each

county and city assessor shall use in assessing and valuing all classes of

property in the state”). This manual, known as the Iowa Real Property
Appraisal Manual, includes depreciation tables, which under the

circumstances of this case would call for a depreciation factor of only

twenty-nine percent. Consequently, Blanchfield’s cost-approach value of

$232,000 was also an understatement of the value of the Soifers’

property.

      D. Realtor Parsons. Parsons used property sales in Charles City

for her comparable-sales valuation because she believed these properties

were sufficiently comparable and the market for commercial property in

Charles City was uniquely local and not part of a region-wide market.
                                    28

Although we have determined the properties used by Parsons satisfied

the threshold requirement of similarity, we are not persuaded the market

for a McDonald’s restaurant is uniquely local. “When from the nature of

the property the market for the purchase and sale encompasses a wider

area, the wider area becomes the field for investigation.” Bartlett & Co.

Grain, 253 N.W.2d at 94 (allowing evidence of sales of “other terminal

elevators” that were at some distance from property being assessed);
accord Farmers Grain Dealers Ass’n v. Sather, 267 N.W.2d 58, 62 (Iowa

1978) (rejecting argument that witness’s testimony was incompetent

because most of comparable grain elevators were located out of state).

      In determining the appropriate geographic area that may provide a

source for comparable properties, we focus on the present use of the

assessed property. See Maytag Co., 210 N.W.2d at 591 (holding property

must be valued as it is presently being used). In the present case, that

use is as a McDonald’s restaurant or, more generally, as a fast-food,

franchise restaurant.   Therefore, the focus is on a buyer interested in

purchasing a McDonald’s or similar fast-food restaurant.         Parsons

suggested no reason that a buyer interested in operating a fast-food

restaurant would restrict his or her search to Charles City, Iowa. Indeed,
the Soifers own McDonald’s restaurants in Oelwein, Independence, and

Waverly in addition to the Charles City location.

      Because we are not convinced the market for the subject property

was uniquely local as asserted by this witness, we do not consider the

comparable properties she used to reach an opinion on value particularly

persuasive. Moreover, because Parsons limited her other sales to those

occurring in Charles City, she considered no franchise-to-franchise sales

in determining market value. For these reasons, we think her valuation

is not entitled to as much weight as that of Ehler.
                                     29

       In summary, we find the valuation of the Board’s witness, Ehler, to

be most convincing. Because that valuation exceeded the value placed

on the property by the Board, we conclude the Board has carried its

burden to prove that its valuation was not excessive.

       VI. Was the Valuation Inequitable?

       The taxpayers claim their property was assessed at a higher

percentage of fair market value than comparable properties in the taxing
district.   See Iowa Code § 441.37(1) (allowing taxpayer to protest

assessment as “not equitable as compared with assessments of other like

property in the taxing district”).

       When this ground is relied on, the complainant must prove
       (1) that there are several other properties within the
       assessment district similar and comparable to the one at
       issue, (2) the amount of the assessments on those
       properties, (3) the actual value of the comparable properties,
       (4) the actual value of the property at issue, (5) the
       assessment complained of, and (6) that by a comparison the
       property at issue is assessed at a higher proportion of its
       actual value than the ratio existing between the assessed
       and actual valuations of the similar and comparable
       properties, thus creating a discrimination.

Riso, 362 N.W.2d at 517.        As with a claim of excessiveness, if the

property owner “produces competent evidence by two disinterested

witnesses that the market value is too high because it is inequitable,” the

burden of proof shifts to the board of review. Id. at 518.

       After reviewing the record, we conclude the taxpayers did not

introduce the testimony of two disinterested witnesses that the valuation

of the subject property was inequitable when compared with similar

properties in Floyd County. Therefore, the burden of proof did not shift

to the Board. Our review also convinces us the taxpayers did not meet

their burden to prove the elements of their challenge based on the alleged

inequitable assessment of their property.
                                     30

      VII. Summary.

      Although the Soifers introduced the testimony of two disinterested

witnesses that the assessed value placed on their property by the Board

was excessive, we conclude the Board met its burden to prove the

assessed value was not excessive. The Soifers did not establish the value

placed on their property was inequitable when compared to comparable

properties in the taxing district.
      We vacate the decision of the court of appeals reducing the

assessed value of the Soifers’ property. We affirm the judgment of the

district court finding the actual value of the subject property was the

assessed value of $352,990 set by the Board.

      DECISION OF COURT OF APPEALS VACATED.                      DISTRICT

COURT JUDGMENT AFFIRMED.

      All justices concur except Baker, J., who takes no part.
