Key takeaways

  • Just compensation is the full and perfect equivalent in money of the property taken, meant to leave the owner in as good a position financially as if nothing had been taken.
  • The ordinary measure is fair market value on the date of the taking, valued at the highest and best use rather than the current use.
  • Fair market value is not the only standard. The Supreme Court has said the requirement also draws on basic principles of fairness.
  • In a partial taking, compensation includes the value of the part acquired plus severance damages to the remainder, and the agency must state those two figures separately in its written offer.
  • Value that the government project itself creates is excluded from the award.
  • Relocation benefits under the Uniform Relocation Assistance Act are paid in addition to compensation, not out of it.

The constitutional standard

The Fifth Amendment requires just compensation, and in United States v. Miller (1943) the Supreme Court described what those words mean: the full and perfect equivalent in money of the property taken, so that the owner is put in as good a position pecuniarily as if the property had not been taken.

Two things follow. Compensation is measured in money, so sentiment, family history, and the trouble of moving do not enter the calculation. And the target is equivalence, not generosity and not a discount. The Court has also been clear that fair market value is not an absolute or exclusive standard, and that the requirement draws on basic principles of fairness as well as on property law.

Fair market value

The ordinary measure of just compensation is fair market value: the amount a willing buyer would pay a willing seller in an open market transaction, with neither under compulsion to act. The standard traces through Olson v. United States (1934) and Miller.

The compulsion point matters. You are being compelled, but the hypothetical seller in the valuation is not. The number is what the property would have brought in a normal sale, not what you would accept under pressure of a filing deadline.

Value is measured on the date of the taking. In a federal case initiated by a Declaration of Taking under 40 U.S.C. 3114, title vests when the declaration is filed and estimated compensation is deposited, which fixes that date early. In a straight condemnation under 40 U.S.C. 3113, compensation is usually determined before possession passes.

Highest and best use

Fair market value assumes the highest and best use of the property as of the date of taking, not merely the use it happens to be put to. Highest and best use is the most profitable legal use to which the property can reasonably be put. The claimed use must be legally permissible, physically possible, financially feasible, and maximally productive.

Speculation is excluded. There must be a reasonable probability that the property could be put to the claimed use in the near future. Within that limit, this is where the largest dollar gap in most cases sits. Owners argue development potential; condemnors argue the current use. Farmland with a subdivision plan, an approved rezoning, sewer at the property line, and comparable sales nearby is a different asset from farmland with none of those things.

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The three appraisal approaches

Appraisers estimate fair market value with three standard approaches, and a competent report explains why one is given the most weight.

The sales comparison approach looks at recent sales of similar properties in the same market and adjusts for differences. It usually carries the most weight for residential and vacant land.

The cost approach takes the cost to replace or reproduce the improvements, subtracts depreciation, and adds land value. It is most useful for special purpose properties with few comparable sales.

The income approach applies to income producing property. It analyzes expected net operating income and applies a capitalization rate. For a leased retail building or an apartment property, the assumptions inside that single rate move the value more than anything else in the report.

Partial takings and severance damages

Most takings are partial. A highway widening, a pipeline easement, or a transmission corridor takes a strip and leaves the rest. Miller established that a parcel used and treated as an entity is considered as such in assessing compensation, so a partial taking includes value arising from the relation of the part taken to the whole.

Severance damages compensate the loss in value to what remains, and they are paid in addition to the value of the part acquired. Common causes are loss or relocation of access, an irregular or unusable remainder shape, proximity of the new public use, and loss of the remainder highest and best use.

The federal acquisition rule requires the agency to establish an amount that takes into account the value of allowable damages or benefits to any remaining property, and requires that the written summary statement give the compensation for the part acquired and the compensation for damages to the remainder separately. Read those two numbers before anything else.

If the part taken would leave you with an uneconomic remnant, the agency must offer to acquire the remnant as well.

The project influence rule

Value added to the property by the government project itself is excluded from compensation. This is the project influence rule from Miller. If the announcement of an interchange lifted your land value, you do not get paid for the lift the interchange created.

The rule cuts both ways in practice, and owners should watch the other direction closely. Where a long announced project has depressed values in the corridor for years, arguing that the depression is itself project influence and should be excluded from the comparable sales is a standard and legitimate line of attack.

What is not paid as compensation

Compensation is for the property interest taken and the damage to what remains. It is not a general damages award. Items that owners expect and that generally are not part of the constitutional measure include emotional distress, the inconvenience of moving, and the loss of a business rather than the real estate it occupies. Some states compensate business damages or lost goodwill by statute, and a few compensate them generously. This is one of the widest divergences between states, so read your state guide rather than assuming the federal rule.

Attorney and appraisal fees follow state law as well. Some states shift fees to the condemnor when the award exceeds the offer by a set margin; others do not. [NEEDS SOURCE] for any specific state threshold, which should be verified against that state statute before you rely on it.

Relocation benefits are separate

For federal and federally assisted projects, the Uniform Relocation Assistance Act at 42 U.S.C. 4601 and following provides advisory services, moving expense payments, and replacement housing payments to displaced persons. These benefits are in addition to the just compensation paid for the property. They are not a substitute for a fair price and they are not deducted from it.

Deposits and interest

When a federal condemnation begins with a Declaration of Taking, the government deposits its estimate of compensation with the court and title vests immediately. Your right converts to a claim for just compensation, and interest is owed on any shortfall between the deposit and the final award. Withdrawing the deposit generally does not waive your right to argue for more, but the mechanics and any conditions on withdrawal vary, so confirm them with counsel before you file the motion.

The agency must also pay the agreed price, or deposit not less than its approved appraisal of fair market value with the court, before it can require you to give up possession.

Where the money is actually won

Three places, in order. First, highest and best use, because it resets the entire valuation rather than adjusting it. Second, severance damages, which are often understated in the agency appraisal because the appraiser assessed the part taken carefully and the remainder quickly. Third, the comparable sales themselves, including which sales were used, how they were adjusted, and whether any of them were themselves sales to the condemnor under threat of condemnation.

Each of those is an appraisal argument before it is a legal argument. That is why an independent appraisal, obtained early, is usually the highest return decision an owner makes.

Frequently asked questions

How is just compensation calculated?

It starts with the fair market value of the property on the date of the taking, valued at its highest and best use rather than its current use. In a partial taking it also includes severance damages, meaning the loss in value to the property you keep. Value created by the government project itself is excluded.

What is the difference between fair market value and what my property is worth to me?

Fair market value is what a willing buyer would pay a willing seller in an open market, with neither under compulsion. It is an objective market measure. Personal attachment, the cost of finding an equivalent home in your neighborhood, and the disruption of moving are real, but they are not part of the constitutional measure. Relocation benefits address some of the moving costs separately.

Do I get paid for the land I keep?

Not for keeping it, but you are compensated if the taking reduces its value. That payment is called severance damages, and it is added to the price of the part taken. The agency must state the two amounts separately in the written statement that accompanies its offer.

Does the government project count as raising my property value?

No. Value added to the property by the project itself is excluded under the project influence rule from United States v. Miller. Where a long announced project has instead depressed values in the corridor, arguing that the depression should also be excluded from the comparable sales is a standard response.

Are relocation payments taken out of my compensation?

No. Under the Uniform Relocation Assistance Act, advisory services, moving expense payments, and replacement housing payments are in addition to the just compensation paid for the property.

Should I get my own appraisal?

In most cases yes, and early. Highest and best use, severance damages, and the choice of comparable sales are the three places where awards actually move, and all three are appraisal questions. The federal rules require the agency to consider material you present and to update its valuation when that material warrants it.

Sources

Educational information only. This guide describes the federal constitutional measure of just compensation and the federal acquisition rules. State valuation rules, business damage statutes, and fee shifting provisions differ, and any state specific figure should be verified against that state statute. This page is not legal advice and does not create an attorney client relationship. Consult a condemnation attorney licensed in your state.
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Eminent Domain Lawyer Editorial Team

We publish plain language guides for property owners facing condemnation, researched against primary legal sources. We serve property owners only, never condemning authorities.