Eminent Domain Appraisal
Any discussion of appraisals in the eminent domain arena should be understood with a few definitions in mind. Thus, we direct the reader to the following Definitions:
Eminent Domain
The right of government to take private property for public use upon the payment of just compensation. The Fifth Amendment of the U.S. Constitution, also known as the takings clause, guarantees payment of just compensation upon appropriation of private property. (Source: The Dictionary of Real Estate Appraisal, 4th Edition, Published by the Appraisal Institute)
Condemnation
The act or process of enforcing the right of eminent domain. (Source: The Dictionary of Real Estate Appraisal, 4th Edition, Published by the Appraisal Institute)
Condemnation Blight
A diminution in the market value of a property due to pending condemnation action. (Source: The Dictionary of Real Estate Appraisal, 4th Edition, Published by the Appraisal Institute)
“Fair Market Value”
Used in Eminent Domain Cases: The fair market value of the property taken is the highest price on the date of valuation that would be agreed to by a seller, being willing to sell but under no particular or urgent necessity for so doing, nor obliged to sell, and a buyer, being ready, willing, and able to buy but under no particular necessity for so doing, each dealing with the other with full knowledge of all the uses and purposes for which the property is reasonably adaptable and available. (Source: Code Civ. Proc. § 1263.320(a), State of California)
A Discussion of Eminent Domain from the Appraiser’s Perspective
When a property is being taken by the state, a local government body, or a statutory body, the property owner is usually sent a letter that says in effect that they will be taking your property and further stating that they have had the property appraised. It will usually make an offer to the owner for the appraised value. However, the detail from the appraisal itself is typically limited to raw transactional data with limited or no analysis included in the letter. Sometimes the appraised value and subsequent offer will be fair as the appraised value might have been generated giving significant weight to the Fair Market Value detailed above. However, usually, the owner of the property being taken under eminent domain laws has little evidence of the property’s value beyond that being stated by the condemning party. This makes it very difficult to determine if the offer is a fair one.
In California, changes to the law require the plaintiff (the body exercising its right to condemn the property under eminent domain laws) to give the defendant (the party who’s property is being condemned) $5,000 for appraisal fees. Other changes in the law also make it harder for the condemner to take the property without having first agreed to the value of the property. These two combined changes in the law should make negotiating with the plaintiff an easier process, as the defendant now has the money to pay for an independent appraisal as well as the power of time given by the requirement that a financial settlement much be reached before the property will be handed over to the plaintiff.
But even with these changes, it is our opinion that in most cases the defendant should seek legal representation, avoid negotiating with the condemner directly and avoid hiring the appraiser on their own.
When a property is being taken by the state, a local government body, or a statutory body, the property owner is usually sent a letter that says in effect that they will be taking your property and further stating that they have had the property appraised. It will usually make an offer to the owner for the appraised value. However, the detail from the appraisal itself is typically limited to raw transactional data with limited or no analysis included in the letter. Sometimes the appraised value and subsequent offer will be fair as the appraised value might have been generated giving significant weight to the Fair Market Value detailed above. However, usually, the owner of the property being taken under eminent domain laws has little evidence of the property’s value beyond that being stated by the condemning party. This makes it very difficult to determine if the offer is a fair one.
In California, recent changes to the law require the plaintiff (the body exercising its right to condemn the property under eminent domain laws) to give the defendant (the party who’s property is being condemned) $5,000 for appraisal fees. Other changes in the law also make it harder for the condemner to take the property without having first agreed to the value of the property. These two combined changes in the law should make negotiating with the plaintiff an easier process, as the defendant now has the money to pay for an independent appraisal as well as the power of time given by the requirement that a financial settlement much be reached before the property will be handed over to the plaintiff.
But even with these changes, it is our opinion that in most cases the defendant should seek legal representation, avoid negotiating with the condemner directly and avoid hiring the appraiser on their own.
We have three reasons for these opinions:
1) The appraised value provided to the condemner was written by an appraiser who in all likelihood would act as an expert witness for that side in the event of a trial. As such, it is quite possible that they have not taken to heart the definition of fair market value above (I strongly suggest reading it!). I have been involved in situations where the municipality’s appraised value was almost one half of the actual value.
2) Even if you use the $5,000 for your own appraisal, you then have to negotiate with the body yourself. This is an arduous process and you would be dealing with skilled negotiators. Moreover, the appraisal you engage will become part of the record, either in the form of the copy you give the other side, or via the process of discovery before trial. This leads to the third reason to hire an attorney.
3) Most importantly, your attorney should hire the appraiser directly. The appraiser can be hired as a consultant and issue the appraisal in a restricted format. If you and/or your attorney do not like the appraisal, the appraiser, or the results, your attorney can hire a new appraiser without the previous appraisal making it into the court record. That is because it is protected by attorney client privilege.
What to Expect From Your Appraiser
Once you hire your attorney they will likely engage an appraiser that they are comfortable with. Once engaged the appraiser will inspect the property and behind their search for the appropriate comparable sales and rental datum. If the highest and best use is an alternate use, the appraiser will likely be searching for land sales, whereas, if the highest and best use is for continued use, sales will be of similar improved properties. If the property is income producing, or has the potential to be income producing, the appraiser will also likely conduct an income approach.
By law the appraiser is an independent third party and this does not change in eminent domain cases. Most appraisers guard their independence vigorously, so it would not be a good idea to try and push or sway the appraiser in the direction you are hoping for. Furthermore, your attorney is hopefully experienced in the field of eminent domain and condemnation law, so you would be well suited to let the attorney handle all but the most tertiary discussions with the appraiser. However, in the event that you disagree with the appraiser’s results, you can always ask the appraiser, through your attorney, to revisit the analysis with whatever new information you provide.
Your other option is to hire a new appraiser and keep the original appraisal in the attorney’s files. This will protect the appraisal in the event that the case goes to court and the appraisal will not be discoverable.
We hope that this article has been helpful to you. If you have further questions please feel free to call us, or to ask your attorney to call us. As suggested above, you are best off having an attorney on your side, however, if after reading this article you would still like to discuss engaging us to complete an appraisal in your eminent domain case, please feel free to call.