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Eminent Domain Valuation

June 13, 2024 - Doug Hodge, ARA, MAI

Farmland owners face several challenges to ownership related to utility companies, pipeline companies, highways, and others who need to acquire property for a potential new corridor through their land. There are increasing demands for power and energy sources which is leading to increased demands from agencies needing to acquire land. It is important for landowners and companies that need to acquire a corridor to understand the process of completing appraisals for eminent domain purposes.

Eminent domain appraisals are conducted for a variety of reasons including roads, power lines, pipelines, and other instances where one party needs to obtain property for a purpose that is typically for public use. Eminent domain is the power of the government, as defined by the 5th Amendment of the U.S. Constitution, to take private property for public use, provided that just compensation is paid to the property owner. An eminent domain appraisal is completed to estimate the amount of just compensation that is to be paid. It should be noted that states have varying definitions of just compensation but are generally governed by due process.

In eminent domain proceedings, there are always two sides to the issue. First is the condemning agency which is the party that needs the property for a specified purpose such as a road, drain, power line, or pipeline. Second is the property owner who generally does not have control over this process but is guaranteed the right to be fairly compensated for the loss of their property rights. Property rights in condemnation may be the full-fee simple interest in a property or may be a divisible partial interest such as subsurface rights in the case of a pipeline. In most cases only a portion of a property is taken resulting in a “partial taking” and the effect on the remaining land must also be considered in the calculation of damages and the resulting compensation to the property owner. Commonly, a partial interest is being “taken” for the public improvement.

From a landowners perspective the process of eminent domain proceedings can be quite challenging. Many landowners do not have a good understanding of the process of eminent domain, and this leads to much frustration. In these situations, the appraiser needs to have a full understanding of the rights of the property owner, as well as the condemning authority, when completing an appraisal for a condemnation case. The appraiser must be impartial to the outcome of the valuation in order to ensure the objectivity of the appraisal process. Landowners have the right to obtain legal counsel and can obtain their own appraisal to negotiate a settlement.

Most condemning agencies or authorities realize it is in their best interest to treat the landowner fairly. The process generally begins with contact being made with the landowner by an agent of the condemner who will initially provide the landowner with an estimate of just compensation that is typically either based on a market study or an appraisal. The property owner has the right to accept the initial offer at which time the rights are transferred to the condemner and no further action is needed. However, the property owner has the right to disagree with the initial offer and has the right to negotiate a settlement. If a settlement can’t be reached the process of eminent domain begins. Based on an appraisal the condemner will present a “good faith offer” which includes compensation for the fair market value of the property as well as consideration of any damages or benefits that may accrue to the property as a result of the taking. If the owner rejects the offer legal proceedings commence in order for the condemning agency to obtain the property which allows the condemner to acquire the property. Many states have a “quick takings” procedure where the property is acquired before reaching a settlement which may require time for the process to work through the courts. A hearing will be scheduled in court with both sides presenting evidence of the market value of the property and the hearing may be a jury trial or a bench trial. Following the hearing, a judgment is entered, establishing the amount of compensation the property owner is due.

The condemnation process requires an experienced team including an attorney, appraiser, and others. All parties involved in the proceedings need to have an understanding of the process and the laws and rules that govern eminent domain. At Peoples Company our appraisal team has experience in eminent domain proceedings and in completing appraisals for both the landowners and the acquiring parties. If you have any questions related to obtaining an appraisal for eminent domain proceedings, we are here to be of assistance to you.

Published in: Land Values