Valuation in condemnation
The offer is only as good as the appraisal behind it
When a government agency takes property, the amount it offers comes from an appraisal. That appraisal rests on choices about what the property was worth, what the remainder is worth now and what counts as damage. Each choice can be examined, and each one moves the number.
Start with the question you have
What are you trying to find out
What is my property worth
Fair market value is a legal term of art in condemnation, not a general sense of worth. It has a definition, and the definition excludes things owners expect it to include.
Is the offer fair
An offer is a conclusion. The appraisal that produced it shows the reasoning, and the reasoning is where disagreement belongs.
They are taking only part of it
Partial takings are valued by subtracting the after value from the before value. Most disputes in this field live inside that subtraction.
The rest of my land is worth less now
That loss has a name, severance damages, and it is compensable. It is also the item most often missing from an agency appraisal.
They want an easement, not the land
An easement takes rights rather than title. Valuing it means valuing what the owner can no longer do.
I need my own appraisal
An independent appraisal is the practical answer to an agency number you do not accept. Here is what to look for in one.
The premise
Compensation is a valuation question before it is a legal one
Owners usually meet condemnation as a legal event. A notice arrives, then an offer, then a deadline. The instinct is to find a lawyer, and often that instinct is right. But the quantity in dispute is almost never a question of law. It is a question of valuation, and it is decided by appraisers.
That matters for a practical reason. A legal argument about whether an agency may take property rarely succeeds, because the power to take is broad and the public use requirement is read generously. An argument about what the property is worth succeeds often, because valuation involves judgment and judgment can be wrong.
The useful question is not whether the taking is lawful. It is whether the appraisal is right. Those are different enquiries, they call for different people, and only one of them reliably changes the amount a owner is paid.
This site covers the second question. It explains how condemnation appraisals are built, which choices inside them carry the most weight, where they commonly go wrong and what an owner or an attorney can do about it. It does not give legal advice and it is not an appraisal. It is the reference you would want before reading the one you have been sent.
The mechanics
How a condemnation appraisal is built
Highest and best use
The use the market would pay most for, legally permissible and physically possible. Set this wrong and everything after it is wrong.
The before value
What the whole property was worth immediately before the taking, as a single economic unit.
The after value
What the remainder is worth once the part is gone and the project is in place.
The difference
Before minus after. That figure is the compensation, and it includes severance damages whether or not they are named.
Method
The three approaches, and when each one misleads
Sales comparison
The default for most property. Reliable when genuine comparables exist, and quietly unreliable when the adjustments doing the work are larger than the differences they correct.
Cost
Replacement cost less depreciation. Useful for special purpose property with no market, and prone to overstating value where depreciation is judged optimistically.
Income
Capitalised earnings for income producing property. Highly sensitive to the capitalisation rate, which is where most of the disagreement sits.
Common questions
Questions owners ask first
Can I get my own appraisal, or do I have to accept the agency figure
You can, and in a contested matter you generally should. The agency appraisal is evidence, not a determination. An independent appraisal gives you a competing number prepared to the same professional standards, which is what makes a negotiation possible rather than a request for goodwill.
Who pays for my appraisal
Ordinarily the owner does, at least initially. In some states and in some circumstances appraisal costs are recoverable, and the rules vary considerably by jurisdiction. Treat the cost as the price of knowing whether the offer is defensible.
Does the appraisal account for what the project does to the property I keep
It should. The after value is supposed to reflect the remainder as it will actually exist, including the project. In practice this is where agency appraisals are weakest, because the harm is easier to describe than to price.
Where the remainder loses value, the loss is called severance damages and it forms part of just compensation.
Is sentimental value or relocation cost part of the appraisal
No. Fair market value in condemnation excludes value peculiar to the owner, and relocation expenses are handled under a separate statutory programme rather than as part of the valuation.
How long is an appraisal good for
It states a value as of a specific date, the valuation date, which in condemnation is fixed by law rather than chosen. An appraisal with the wrong valuation date is not merely stale, it answers the wrong question.
By property type
Valuation turns on what kind of property it is
Residential
How the standard method changes, and what it misses, for this property type.
Commercial
How the standard method changes, and what it misses, for this property type.
Industrial
How the standard method changes, and what it misses, for this property type.
Agricultural land
How the standard method changes, and what it misses, for this property type.
Vacant land
How the standard method changes, and what it misses, for this property type.
Special purpose
How the standard method changes, and what it misses, for this property type.
Start where your question is
If an offer has arrived, read the appraisal before reading the offer. If you do not have the appraisal, ask for it. Everything that follows is easier once you have seen the reasoning.