How the Government Takes Property
As cities and towns expand and undertake improvements to roadways, sewer and power lines, communications, and other systems, the government must often secure or acquire access to private land. Without the government's power to do so, the size and capabilities of our public infrastructure would become inadequate to serve the needs of society. The right of the government to obtain private land for public purposes is known as eminent domain, and this right derives from federal and state constitutions and related laws. The power of eminent domain allows the government to take private land for public purposes only if the government provides fair compensation to the property owner. The process through which the government acquires private property for public benefit is known as condemnation.
How the Government Takes Private Property
As the government makes its plans for expansion and improvement of publicly maintained roads and utilities, it determines which private parcels will be affected. Once it makes that determination, the government will work with its own appraisers to determine the appropriate price for the necessary property interests. When the government has established its estimation of the property value, it may offer the landowner a particular price for the property. If the property owner agrees, the government buys the land. If the property owner disputes the government's valuation and they cannot agree on a price, the matter will go to condemnation proceedings.
During condemnation proceedings, the property owner will get to offer his or her own valuation for the property. Typically, the property owner will work with an attorney and an appraiser. The attorney will protect the property owner's legal rights respecting the involved property, and the appraiser will work to establish the property's fair market value. The property owner may also oppose a forced sale by contesting the government's proposed use of the property. As long as the use is proper, however, this type of challenge will fail. As an alternative, the landowner may also claim that the extent of the property the government is attempting to condemn is too great and that its purposes can be fulfilled with less intrusion. Generally speaking, the government is only allowed to invade the property rights of individuals to the extent necessary to accomplish the intended public purpose.
Value of the Property
Most condemnation proceedings turn on the value of the property at issue. How much a piece of property (or an interest in property) is worth depends on many factors. For a piece of undeveloped land with a single owner and no exceptional or unusual features, establishing the property's value may be fairly straightforward. The zoning of the property and the value of surrounding tracts will provide useful guidance for the calculation. In urban settings, however, the property is likely to be developed. In this case, the current use of the property, the structures upon it, access to the property, the interests of any lessees, and many other issues will complicate the value determination. The many unique characteristics of the property often result in a different estimation of value between the property owner and the government. In addition to an appraiser and an attorney, each side may have additional experts, such as engineers and architects.
Factors that are considered in property valuation include: its size, how it is zoned, what kinds of buildings and roads are on it, what it's currently being used for, what it could be used for, how accessible it is, what other businesses or land uses are adjacent or nearby, and whether there are tenants or other leaseholders involved. The property may represent the owner's livelihood, so that to the owner it is worth everything he or she has invested in it, and all that can be derived from it. To the government, however, the relevant value is the property's market value -- what an interested buyer who is not obligated to buy might pay to an interested seller who is not obligated to sell. The valuation is also made as of a particular date. This is because property values can fluctuate over time. To arrive at one price, the determination is established as of one date.
The value determination also turns on the amount of the acquisition. In some instances, the government may need to take all of the owner's property. In other cases, the government's acquisition will be more limited. The government may need to acquire only a part of the property, or just an easement over it. The value of these interests depends on the land involved, and on the effect the loss or intrusion of that land will have on the rest of the property.
In determining the value for a particular piece of property, appraisers and courts generally recognize three approaches: the market approach, the cost approach, and the income approach. Under the market approach, the value for the subject property is established based on recent sales of comparable, nearby properties. Based on these sales, the appraiser forms an opinion as to the price the subject property would bring on the open market. The market approach may be inappropriate if there have been no recent comparable sales in the area. The cost approach (sometimes called depreciated replacement cost) looks at how much it would cost to replace the land and existing structures, after factoring in depreciation. The income approach considers the investment value of the property -- that is, how much one would pay at the moment of valuation in light of the property's income potential.
Time of Valuation
Another point a property owner may contest is the time of valuation. This can happen when the government unreasonably delays its acquisition of the subject property at the same time its actions substantially diminish the subject property's value. For example, the government cannot buy up and condemn adjacent properties, destroy them or let them decay, and then lowball the remaining property owner once his or her own property value has fallen as a result. Such a case is an exception to the general rule that the government does not have to compensate a property owner until it has taken his property or substantially impaired his ability to use it. The government may argue that it has not done so, but the property owner will argue that the government's actions have made his or her property all but useless in the real estate market.
Condemnation proceedings derive from the simple principle that the government may secure private property to benefit the public. Yet, because of the multitude of uses to which the property may be put, and the many factors that can influence the real estate market, condemnation proceedings can be quite complex. The valuation figure that the government reaches may differ from the landowner's, at which point the measurement of value will turn on the persuasiveness of the landowner's appraiser. What's more, the property owner's appraisal must meet specific legal requirements. Fair value will be based on the extent of the property taken and an analysis of the many interests involved. For anyone attempting to prove a different value for the property, or limit the extent of the government's intrusion, the assistance of an experienced attorney is a valuable asset.