When the government (or any other condemning authority) takes your land for a public use, it is Constitutionally required to pay you just compensation. The U.S. Constitution, however, does not set forth the method or formula for determining eminent domain property value or just compensation. Rather, the standard for just compensation has evolved over several hundred years of interpretation by both the federal and state court systems. As a very general rule, just compensation is determined by paying the property owner the price that he or she would have received had the property been sold on the open market. This fair market valuation formula of just compensation in the context of eminent domain is subject to many additional standards, qualifications, and exceptions that can make the calculation more difficult and confusing.
In this article we explore the eminent domain compensation process and some of the different methods used to calculate just compensation. We also look at how the government (or other condemning authorities) goes about seizing your property, how the offer process works, and some tips to ensure that you receive a fair eminent domain payment. This article is for informational purposes only and in no way replaces the need for you to seek professional legal advice.
What is Just Compensation for Eminent Domain
Just compensation is the amount of money that a government entity or other condemning entity is required to pay a landowner when it takes a portion or the entire property. The amount of just compensation paid is typically the fair market value of the property as calculated by a real estate appraiser or other real estate professional. Where there is a partial taking of property, the eminent domain payment is equal includes the difference between the value of the property before and after the taking.
Just Compensation Constitutional Clauses
Just Compensation is a term that appears in the Fifth Amendment of the U.S. Constitution. The relevant language of the Fifth Amendment provides that “nor shall private property be taken for a public use, without just compensation.” Since it was written into the Constitution some 230 years ago, courts across the U.S. have interpreted and narrowed down the meaning of eminent domain just compensation.
The Texas Constitution contains a similar clause that provides: “No person’s property shall be taken…for a public use without adequate compensation…and only if the taking is for the State…or the public at large; or an entity granted the power of eminent domain under law.”
Taking and Just Compensation
A taking occurs where a government entity or other condemning authority either seizes or deprives the owner of the property’s free use or enjoyment. While governments have been seizing private land for thousands of years, the right was first formally set-forth in the U.S. in the Fifth Amendment of the Constitution. The Fifth Amendment is commonly known as the “takings clause” and has been interpreted by courts to include the following:
- A taking must serve a “public use”; and
- Where a taking occurs, the government must pay “just compensation”
Unfortunately for landowners, the public use requirement has been defined broadly. A taking serves the public use as long as it is rationally related to the intended use of the property. This does not mean that the end use of the property will enable the public to use it. What it means is that provided it benefits the general public, like running an oil pipeline, the public purpose requirement will likely be met. For this reason, much of the litigation surrounding takings involves eminent domain just compensation.
The landowner will usually first become aware that the government seeks to take his or her property through eminent domain when a Notice of Condemnation is sent to the owner. In Texas, when you receive a Notice of Condemnation you have some important rights. If you have received a Notice of Condemnation, it is important to consult with an experienced Houston eminent domain lawyer as soon as possible to discuss your options.
Where a property has been taken for a public use, the question becomes: what is just compensation for eminent domain? Many landowners struggle with the value given to their property in eminent domain or condemnation cases. Fair market value does not take account of the value that owners assign to their properties. As a general matter, the property is worth what the owner could get for it on the open market, or the value that it appraises for (which is supposed to reflect its fair market value).
Factors of Just Compensation
There are several factors that make up fair market value for the purposes of calculating eminent domain just compensation.
Fair Market Value of Land
The fair market value of the land is the value that a landowner could sell the property for on the open market.
Fair Market Value of the Improvements
The fair market value of improvements accounts for the physical structures and other important features of the land. This includes things like houses and buildings.
Damages to the Remainder
This factor is relevant in partial takings of land. Where land is partially condemned, just compensation includes not only the fair market value of the part being physically taken, but also is a function of the difference between the remainder land before and after the taking. In addition to looking at the change in value from a reduction of size, it is also necessary to consider whether the property can still be put to its highest and best use, and a myriad of other factors that can damage the value of the remainder property.
Other Damages Caused by Taking
These are generally ancillary damages like the costs associated with replacing utilities servicing structures that remain on the land. For instance, if the taking will remove a buried oil tank servicing a dwelling, the entity will likely have to pay the costs for installing a new one.
In the unlikely event that the condemnation provides benefits to your remaining property then the government may be able to deduct the value of such benefits from the total eminent domain payment to be made.
Methods for Property Valuation
Texas law provides important safeguards for landowners to ensure that they are adequately compensated in the event their property is seized through government action, eminent domain, or condemnation. Prior to the commencement of a formal condemnation action, the condemning entity must make an initial offer in writing to the landowner. The value of the offer must be supported by a written appraisal from a certified appraiser. If the parties cannot agree on the value then the entity can file a condemnation petition.
The appointed appraiser will consider factors like the size of the property, its current or potential use, zoning classification, and its current level of development. There are several different methods commonly used by appraisers to determine the fair market value of a property:
- Sales Comparison Approach: a commonly used method that uses comparable sales of neighboring properties to justify the value placed on the target property;
- Income Approach: generally used for income-producing properties like an apartment building. This approach involves some complex numerical and financial calculations but as a general matter the calculation determines the value of the property based upon the property’s rental income generation;
- Cost Approach: less commonly used, this method looks at the value of the land and what the cost would be to build the existing structures and improvements on it. This calculation is used more in rural areas or for unique properties and situations where there are not as many comparable sales to base the value on;
- Damages to the Remainder: useful in partial condemnations, looks at the difference between the value of the property before and after the taking, and accounts for any other damages caused to the remaining land or structures such as the costs of replacing utilities servicing the property.
It is important to note that for business owners, damages do not generally include the loss of business income. So, if a business looses customers due a partial taking of land, the owner usually cannot recover for lost sales.
The Government’s Offer Isn’t Always “Just Compensation”
It is very important to keep in mind that just because you receive a Notice of Condemnation apparently supported by a written appraisal, that does not necessarily mean that you are being offered true just compensation. In fact, condemning entities typically do what they can to minimize the amount of just compensation paid. You have important rights under Texas law to ensure that you receive fair compensation for your property. An experienced Texas eminent domain lawyer can protect your rights and get you what you deserve for your property.
Little Known Facts (Tips)
There are some important points to keep in mind when faced with a condemnation action and determining whether you are being paid adequate compensation.
- The value of your property is not limited to its current use. This means that you are entitled to a valuation for the “highest and best use” use of the property. For instance, if you own vacant land that is seized, the value needs to account for the possibility of the construction of physical structures consistent with the property’s zoning classification and potential development, that is feasible, in the near foreseeable future.
- You may be entitled to have the government pay your legal fees if you are successful in preventing the government from condemning your property. If you are unsuccessful, some eminent domain law firms are willing to work on a contingency fee basis to help you recover just and adequate compensation for the eminent domain taking of your property.
- You may be entitled to reimbursement for relocation expenses. This can be especially important for difficult moves like relocating a business to another location.
- You are entitled to adequate compensation for partial takings of land. Calculating the fair market value for partial takings can be more difficult than condemnations of entire parcels. It is important to take into account all factors that result in a decrease in the value of your remaining property.
- Condemning one property may cause damages to another property. If you own adjacent parcels of land and the taking of one impacts the value of the other, you may be entitled to damages for the decrease in value to the remaining property.
Consult with an experienced Texas Eminent Domain Lawyer
If you are facing a condemnation action, it is important that you consult with an experienced Texas eminent domain lawyer as soon as possible. The Padua Law Firm works hard to ensure that your rights are protected and that you receive the full amount of just and adequate compensation that you are entitled to due to the taking via condemnation of your property. If you have any questions about eminent domain compensation or the condemnation process please contact us today for a free consultation. Our firm handles most eminent domain and condemnation cases on a contingency fee basis, which means you pays us nothing unless we increase your compensation.