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How Do You Determine Just Compensation in Eminent Domain Cases?

And when to challenge the government’s initial offer

The requirement that the government pay for the private property it takes under eminent domain is called just compensation.  

“The government always has to pay for property that it takes,” says Texas eminent domain attorney Charles B. McFarland

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

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

What Is the Power of Eminent Domain? 

As McFarland explains, eminent domain is when a state or federal government takes private property for public use. As a matter of terminology, a government agency or other entity that exercises the eminent domain power is referred to as a “condemning authority” or “condemnor.” 

This 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 
  • 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 the concept of “public use” is quite broad. Practically, this means that even though the requirements for “public use” vary according to state statutes, it’s generally very hard for a property owner to successfully challenge the government’s need for 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. 

Note that an eminent domain proceeding refers to the process by which the government files a lawsuit to acquire someone’s property. An inverse condemnation proceeding is when the government has moved 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, that’s what a property would go for if a willing seller sold to a willing buyer on an open market. McFarland adds that “the uses to which the acquired property is expected to be put” are also taken into consideration.  

In some cases, the government doesn’t take the entire property; a part of it remains in the owner’s possession. However, the government “doesn’t have to pay for every impact to the remaining property,” explains McFarland, adding “the rules at the edges differ state by state and under the federal framework.” 

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

  • Market approach. Appraisers will look at comparable sales to assess the value of the property. For example, if the government wants to take a homeowner’s property, appraisers will look at recent property sales involving similar houses (size, amenities, etc.) or at similar plots of land. This method only works if there are properties for comparison. 
  • Income approach. Suppose a piece of property generates income for the property owner (for example, a rental property). In that case, 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. 
  • Cost approach. If the land has a unique or special structure on it, this method is used to calculate 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. 

Getting 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.” 

If that happens, McFarland feels it’s important to get legal help. 

“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,” he says. 

So, while “you don’t 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 Legal Fees? 

Even if the case progresses further, McFarland says, legal representation in eminent domain cases “typically proceeds on a contingency fee basis, and that contingency fee is typically only applied to the amount of money that the lawyer or law firm is able to get for the landowner over and above the offer amount.” 

Because of the way contingency fees work, “anything that a lawyer does to increase the offer amount is of benefit to the landowner,” adds McFarland. 

McFarland explains the rationale for contingency fees: “The lawyer is the person who is 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.” 

“There’s a sense that if you’re meeting with a lawyer, the meter’s running. 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.” 

Questions for an Eminent Domain Attorney 

To get the most out of a consultation with an attorney, be sure to ask informed questions, including: 

  • What are your attorney’s fees and billing options? 
  • What is your experience with condemnation cases? 
  • How do I get fair compensation for my land? 
  • What is an easement? 
  • What is the best use of my land? 
  • Am I entitled to severance damages for a partial taking? 

Once you have met with a lawyer and gotten your questions answered, you can begin an attorney-client relationship. 

Look for an eminent domain attorney in the Super Lawyers directory.

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