How Do You Determine Just Compensation in Eminent Domain Cases?

“The government always has to pay for the private property it takes through eminent domain,” says Texas eminent domain attorney Charles B. McFarland. This requirement is called just compensation.

The key question is: How much? Determining just compensation can be complicated and is frequently litigated in eminent domain cases. 

This article will overview some of the factors that can go into determining just compensation. Since this area of law varies by state and can be very complex, it’s wise to consult with an experienced eminent domain attorney if you’re involved in an eminent domain action. 

What Is the Power of Eminent Domain? 

Eminent domain is when a state or federal government takes private property for public use. The government agency or other entity that exercises the eminent domain power is called a “condemning authority” or “condemnor.” 

This eminent domain power is established in the takings clause of the Fifth Amendment to the U.S. Constitution, which states, “Private property [shall not] be taken for public use, without just compensation.” There are two basic requirements for the government to legitimately take private property: 

• The taking must be for a public use; and 
• The government must give just compensation to the property owner. 

In the 2005 case Kelo v. City of New London, the U.S. Supreme Court established that “public use” is quite broad. Though public use criteria vary by state law, it’s generally difficult for a property owner to successfully challenge the government on public use. 

Challenges to the just compensation requirement are more often successful. The property owner can argue that the government’s offer is too low based on the value of the land and can demand that the amount of just compensation be increased. Real estate appraisers and other experts are often involved on both sides of these cases to argue about the property’s value. 

What Is an Inverse Condemnation Proceeding?

An eminent domain proceeding refers to the process by which the government files a lawsuit to acquire someone’s property.

An inverse condemnation proceeding occurs when the government moves ahead with using someone’s property without going through the formal process, and the property owner challenges the government’s actions. 

How Is Just Compensation Determined? 

“For a long time, the benchmark for just compensation has been market value,” says McFarland. 

As a general rule, the fair market value of the property is what a property would go for if a willing seller sold to a willing buyer on an open market. “The uses to which the acquired property is expected to be put are also considered,” adds McFarland.

Sometimes, the government doesn’t take the entire property; part remains in the owner’s possession. But the government “doesn’t have to pay for every impact to the remaining property,” says McFarland, who adds, “The rules at the edges differ state by state and under the federal framework.” 

Three Methods to Evaluate Property Value

There are a few basic valuation methods for the payment of just compensation. The following methods depend on the type of property involved: 

1. Market Approach

Appraisers will look at comparable sales to assess property value. For example, appraisers might look at recent property sales involving similar houses (size, amenities, etc.) or similar plots of land. This method only works if there are properties for comparison. 

2. Income Approach

If a piece of property generates income for the property owner (such as a rental property), appraisers will calculate the net income generated by the property (after operating expenses and other factors) and project that amount into the future to arrive at a value for the property. 

3. Cost Approach

If the land has a unique or special structure, this method calculates how much it would cost for the property owner to rebuild the structure elsewhere. Generally, the value of the land is calculated and deducted from the value of the special structure. Any depreciation in the value of the structure is also taken into account. 

When Should You Get Legal Help? 

“Not every offer is a bad offer,” McFarland says. “There’s a sense that the government always lowballs, but landowners accept a majority of offers without challenging them.” 

However, if you challenge the government’s offer, McFarland feels getting legal help is important. “A lawyer who practices in this area typically won’t charge a landowner to evaluate an offer and tell them whether or not they think it’s something they can improve upon. While you don’t necessarily need a lawyer to receive or accept an offer from the government, if the asset is significant or in use or development, you should probably have somebody look at the offer. Again, there shouldn’t be a charge for an evaluation.” 

How Do Eminent Domain Attorneys Charge Attorney’s Fees? 

If the eminent domain case progresses, legal representation “typically proceeds on a contingency fee basis,” says McFarland. In a contingency fee agreement, the lawyer only gets paid a percentage of your final settlement, so there are no upfront legal fees.

“There’s a sense that the meter’s running if you’re meeting with a lawyer. But that’s not the case,” says McFarland. “You should be able to ask about fees before meeting or sending materials to an attorney. There should not be a charge for evaluating your case. If we evaluate it and don’t think we can help, we have no incentive to engage a client we don’t think we can help.” 

McFarland adds that in eminent domain cases, “The contingency fee percentage is typically only applied to the amount of money that the lawyer can get for the landowner over and above the offer amount. The lawyer is the person best positioned to evaluate an offer and tell you whether it’s worth expending time and resources towards trying to get an increase, and so they’re the person who should bear the risk if they’re not able to get an increase. Anything a lawyer does to increase the offer amount benefits the landowner.”

Find Experienced Legal Help

Visit the Super Lawyers directory to find an experienced eminent domain attorney in your area. To learn more about the topic, see our overview of eminent domain law.