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Fair Compensation in Condemnation: Determining Market Value and Losses

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When a government entity takes property through eminent domain, the property owner is entitled to receive compensation that is just and fair. But how exactly is just compensation calculated? Learn how the fair market value of a property is used to calculate just compensation and see what type of damages a property owner may be eligible to receive.

What Are the Components of Just Compensation in Eminent Domain Cases?

Just compensation takes into account the fair market value of the property taken at the time of the seizure. In the case of a taking that includes the entire property, an appraiser can take into consideration the value of the property at its highest and best use, which is not necessarily the property’s current use.

In other cases, the condemning entity may only take a portion of a property (a partial taking). In the case of a partial taking, the appraiser may take into consideration the value of the property before the taking and its value after the taking. In partial takings, some landowners may be eligible for damages compensation in addition to compensation for the land being taken.

What Does Fair Market Value Mean?

Fair market value is the amount that a property is worth in an open and fair market, where both buyers and sellers have equal bargaining power and are willing participants in the transaction. To determine fair market value, appraisers typically look at the purchase prices of similar properties that have recently been bought and sold on the open market. An appraiser may look at the comparable sales and take into account any improvements or changes made to the subject property, as well as the current market conditions. The appraiser may also consider any special features of the property that could influence the market value, such as location, zoning, and access to utilities.

Market value isn’t necessarily the same as the amount of compensation a property owner may receive under eminent domain. Just compensation is determined by the property’s fair market value as well as several other factors, such as damages to the property or loss of business income.

Are There Any Types of Property Sale That Cannot Be Used to Determine Fair Market Value?

Fair market value is determined by consummated transactions, meaning that the purchase price and all terms of the purchase have been agreed to between the respective buyer and seller, and the transaction has actually closed so that title has been transferred. Offers to purchase, listing prices, and other non-consummated real estate transactions cannot usually be considered for purposes of determining market value, although there may be exceptions to this general rule in certain cases.

Sales made to a condemning authority, such as a government agency, are considered forced sales and are likely to be deemed inadmissible for the valuation process because they do not accurately reflect the fair market value of the property, as the seller did not have a choice in the matter. In addition, fair market value does not include personal factors such as stress, pain and suffering, loss of time or inconvenience, relocation expenses, sentimental attachment, or emotional distress. These factors may be considered in separate claims for damages.

Are Property Owners Eligible to Receive Compensation for Damages?

In an eminent domain condemnation, property owners may also be eligible to receive compensation for damages caused by the project to the remaining portion of their property (called the remainder or residue). Compensation for damages is determined by calculating the difference between the fair market value of the remainder before and after the project. Damages can include a decrease in value due to factors such as noise, vibration, or other adverse effects of the project. Property owners may be eligible for severance damages compensation in addition to receiving just compensation for their condemned property.

If your property is in the process of being condemned by the government, reach out to an eminent domain attorney right away. The attorneys at Hansen, Howell & Wilkie, PLLC, have the knowledge and skills to help you protect your property rights and fight for maximum compensation on your behalf. Contact our office at 919-256-5266 to learn more.

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