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Exploring Condemnation: Commentary on Real Property Valuation in Condemnation.

Property condemnation arises from the government exercise of eminent domain. Preparing appraisals for use in the condemnation process is a specialty for many appraisers; they usually have an extensive library (hardcopy and digital) of publications relative to condemnation and valuation matters. Appraisers not involved in such appraisals are well-advised to have some knowledge about condemnation appraising--at least a reasonable acquaintanceship.

The most recent Appraisal Institute publication in this field is a 300-page text and reference book, Real Property Valuation in Condemnation.

Real Property Valuation in Condemnation

(Chicago: Appraisal Institute, 2018). 300 pages, illus. Price: $95.00. AI Price: $75.00. Available in softcover and PDF formats. Item No. 0814M at https://bit.ly/2A2ubPY. ISBN 9781935328742

This is a fresh volume on the topic, and like the internationally recognized text The Appraisal of Real Estate, the book Real Property Valuation in Condemnation is an extensive combination text and reference work written by over two dozen collaborating experts with extensive peer review. For some basic content insight, here are the chapter and appendix topics:

1. The Litigation Environment

2. Origin of Eminent Domain and Just Compensation

3. Legal Measurements of Just Compensation

4* Limitations on Property Rights

5. The Larger Parcel

6. Highest and Best Use

7. Land Use Regulations

8. Cost Approach to Value

9. Income Capitalization Approach to Value

10. Sales Comparison Approach to Value

11. Subdivision Development Analysis

12. Construction of the Public Improvement

13. Damages in Partial Taking Cases

14. Benefits--General and Special

15. Easements

16. Inverse Condemnation and Regulatory Takings

17. Writing the Report

18. Preparation for Trial

19. The Expert Witness

20. Liability Risks for Appraisers in Condemnation

* Appendix A: Sample Easement Form

* Appendix B: Appraisal Report Documentation Checklist

The following are comments on the discussions in these sections.

Chapter 1, "The Litigation Environment," addresses the unique appraiser-client relationship in valuations for condemnation. It includes coverage of the importance of appraiser objectivity in the face of pressure or conflict, and the importance of having a clear scope of work. The text notes that normally the client of the appraiser is the attorney for the condemnor or condemnee. (1) In appraisal for condemnation, delivery of a completed appraisal is seldom the end of the appraiser's role. The appraiser-client relationship usually continues throughout the condemnation process, with consultations and possibly further research or trial preparation and testimony. (2)

The chapter contains information about multipremise appraisals, (3) appraiser-attorney relations (which may be strained in view of the attorney's advocate role compared to the appraiser's objective analyst role), and the pros and cons of sharing draft appraisal reports. Further, the discussion provides practical suggestions for appraisers on such things as clearly written legal instructions for the appraiser and on fee arrangements. For example it advises,
   When appraisers are employed by private litigants, they
   should seriously consider requiring that their appraisal
   fee be paid up front, before the assignment is begun, or
   suggest that the fee be placed in escrow ... [so the]
   appraiser is assured of receiving the fee earned, even if
   the client is not satisfied with the appraiser's ultimate
   opinion of value. If appraisers are not paid in advance ...
   it could be made to look like their fee is contingent on
   the outcome. (Page 6)


It also cautions that appraisers should be sure the fee arrangement is sufficient to cover hiring third-party experts or obtaining reports necessary for a well-supported, credible appraisal.

Chapter 2, "Origin of Eminent Domain and Just Compensation," has good material about the basis for eminent domain, which is the right of the government to take private property for public use upon payment of just compensation. This right to compensation arises in the United States from the Fifth Amendment to the US Constitution. Condemnation is the act or process by which this right is implemented. This chapter explores the significance of related terms as well as some interesting historical background. (4)

The Fifth Amendment covers several matters, but its last two clauses are key for eminent domain and condemnation; it states as follows:
   No person shall be held to answer for a capital, or otherwise
   infamous crime, unless on a presentment or
   indictment of a Grand Jury, except in cases arising in the
   land or naval forces, or in the Militia, when in actual
   service in time of War or public danger; nor shall any
   person be subject for the same offence to be twice put
   in jeopardy of life or limb; nor shall be compelled in any
   criminal case to be a witness against himself, nor be
   deprived of life, liberty, or property, without due process
   of law; nor shall private property be taken for public
   use, without just compensation. [Emphasis added.]


The chapter reviews the changing interpretations of the Fifth Amendment term public use. For example, pages 10-12 include a discussion of case law trends (the Kelo vs. City of New London case and others) and the blurring of what is meant by "public use" and whether it applies to general public good and taking private property for economic development. Similarly, the discussion examines the meaning of another key term, just compensation, although this critical term may not always be clear-cut or uniform. The text points out that some state constitutions use other terms, such as "adequate," "reasonable," or "due" compensation, but the concept is the same. Regarding the concept of just compensation, the text explains,
   The basic premise is that the owner must be compensated
   for the taking of the land (i.e., the value of the
   land and any damages accrued as a result of the taking),
   as opposed to being compensated just for the land
   taken. It is also generally recognized that property
   encompasses the entire bundle of rights ... and that the
   taking or infringement on those rights may affect the
   highest and best use of the property and ultimately the
   market value of the property, thereby constituting a
   taking, even if no part of the physical real estate is
   taken. (Page 13)


It also notes,
   about half the state constitutions provide for compensation
   to be paid for the taking of, or damage to, private
   property by the sovereign.... [I]t has been universally
   held that damages to a remainder parcel in a partial
   taking case are part and parcel of just compensation in
   a constitutional sense. (Page 13)


In this way, owners are made whole, i.e., they are no worse off after the taking.

Chapter 3, "Legal Measurements of Just Compensation," tackles the ways just compensation may be measured. Case law and differing constitutional provisions vary by jurisdiction, resulting in several methods of computing just compensation. The local approach is important because "although appraisers do not estimate just compensation, they must report their findings of market value, and the difference in property value before and after a partial taking, in a manner usable to those charged with the responsibility of computing just compensation." (Page 15)

The text offers an overview of the two general rules involved in computing just compensation: (1) the federal rule (also called the before and after rule), and (2) the state rule (also called the taking plus damages rule). Each is discussed thoroughly with helpful, clear illustrations and examples. The chapter addresses general and specific damages as well as related subjects, such as an example of the backland theory. Table 3.3 in this chapter shows a state-by-state comparison of four benefit-offset rules important in matters of partial takings with a remainder parcel. Benefits may sometimes offset compensable items. Matters of benefits, general and special, are discussed in chapter 14.

"Limitations on Property Rights" is the focus of chapter 4. First the discussion explains the distinctions between real estate, real property, and property rights; then, the concept of bundle of rights is taken up, with discussion getting into various access rights and police power. Rights related to changes in highways and traffic, and circuity of travel are covered as well.

Circumstances that may affect the property rights and compensation are also addressed. These include the unit rule, (5) presence of multiple estates or interests in the property (e.g., a life estate), and natural assets or resources (e.g., mineral deposits and timber). The text includes examples and illustrations. The chapter continues with a discussion of the distinction between personal property, fixtures, and trade fixtures. This distinction is important in the condemnation process, as personal property cannot be considered in the determination of just compensation, but a fixture, which is part of the real property taken, must be part of the compensation paid. The special treatment of condominiums, and common areas involved, makes for unique appraisal, and possible legal, challenges; these are discussed with helpful insight and information for valuers. Other challenging valuation issues discussed in this chapter include the value of reversionary interests and the effect on value of restrictive covenants. The reader will find this chapter is especially well documented, with 60 footnote citations.

"The Larger Parcel" is the focus of chapter 5, with considerable attention paid to definitions and the importance of knowing and understanding just what the larger parcel is and its significance.

The larger parcel is critical in valuation, of course; it is also important that there be common understanding between the appraiser and client attorney regarding the larger parcel. The chapter offers several instructive examples and illustrations involving larger parcel issues. The key concepts essential to the larger parcel--unity of title, unity of use, and contiguity--are each discussed with good examples and illustrations. Identifying the larger parcel in a condemnation is critical; the larger parcel is not always obvious and establishing it is not always a simple matter. Other concepts explored in this chapter include plottage (from assemblage) and size regression (based on economies of scale, the price per unit paid decreases). This chapter is a significant help in evaluation of larger parcel alternatives and solutions to problems in determining the larger parcel.

"Highest and Best Use," addressed in chapter 6, is a topic of importance in valuations for market value, an underlying requirement in condemnation appraisals. Several definitions for highest and best use are quoted, (6) and the significance of this market-dependent economic concept is examined. The economic foundation of highest and best use is discussed, with the narrative addressing alternative use scoping to determine reasonably probable alternatives to study; the four tests of highest and best use; troublesome areas, such as the probability of rezoning; and the relationship of marketability analysis to the traditional four tests. (7) The chapter speaks to highest and best use as vacant as well as highest and best use as currently improved. (8) The discussion also examines consideration of all available uses, (9) consistent use theory, (10) and interim (transitional) use. (11)

Some considerations unique to condemnation highest and best use are also discussed: the scope of the project rule and positive and negative project influence. The scope of the project rule holds,
   [T]he effects of a proposed public project cannot be
   considered in valuing a property to be acquired for the
   project when it was clear that the parcel under appraisal
   would, or probably would, be acquired in whole or in
   part for the project. Conversely, the effects of a project
   on a parcel under appraisal must be considered when
   the parcel was not included in the area to be acquired
   for the initial project, but the project is later expanded
   to include acquisition of the parcel in whole or in part
   for the expanded project. (Page 86) (12)


Project influence matters arise from the fact that since projects are usually announced far in advance of the condemnation, a pending condemnation may have a positive or negative influence on market value. A negative influence on value was called project blight in the past; a positive influence was called project enhancement. Those terms are quite descriptive, but now the term used is simply negative or positive project influence. In general, appraisers must not consider either of these factors in appraisals for condemnation. This is often a problem because the market sales transactions in the area, particularly the relatively recent ones, may be subject to such influence. Negative influence may be so severe, especially in cases of a long-awaited project, that there is a de facto taking because of the negative influence creating a depressed market. (13)

"Land Use Regulations" are covered in chapter 7. Over two dozen types of land use regulations are listed, which provides a good checklist for valuers. There is more to investigating permitted uses than simply checking the zoning classification, zoning ordinance, and development codes and regulations. Examples of types of regulations influencing development that need investigation include such items as:

* comprehensive or master plans

* parking ordinances

* building codes

* development moratoriums

* environmental impact statement or report requirements

* shoreline management ordinances

* floodplain or flood zone management regulations

* open space regulations

* rent controls

* timber harvesting controls

* endangered species zones

* sea level rise mitigation requirements

* on-site energy generation requirements

* transportation demand management plans

The list goes on and on, varying with governmental jurisdiction and local situations. Of course, private or nongovernment use restrictions must he investigated as well; these include covenants, conditions, and restrictions; deed restrictions; and easements. (14)

This chapter also deals with challenges in valuation such as legally nonconforming use; possibility and probability of zoning or other use restriction variances; zoning in anticipation of a public project; and environmental contamination. A number of case studies are presented, adding insight for the reader. Lastly, the use of the opinions and reports of third-party experts, and their contributions in the valuation process, is addressed.

The following chapters address approaches to value: "Cost Approach to Value," "Income Capitalization Approach to Value," and "Sales Comparison Approach to Value." These provide a review for experienced appraisers but include special considerations, topics, and material that may be especially important in condemnation appraisals.

Chapter 8, "Cost Approach to Value," points out that this approach is not looked upon with great favor by many courts and jurisdictions; courts prefer the other two approaches because of the underlying premise of each. The text points out, "To say that the cost approach is generally disliked by the courts is an understatement.... [But] most courts allow the cost approach into evidence as long as the improvements enhance the value of the land for its highest and best use and proper deductions are made for depreciation of the improvements." (Page 108)

As chapter 9, "Income Capitalization Approach to Value," explains, for the income approach the comparability of market rental property and market data used for derivation of rates is critical. Any business entity income and business expense for the occupant of the property must be excluded, since "compensation for business loss is generally due only in unique and legally complex circumstances." (Page 116) Direct capitalization is the most common and accepted method of capitalization in condemnation appraisals, but it does require careful explanation and support. Yield capitalization is a second technique, but it is not prevalent in condemnation cases. The Uniform Appraisal Standards for Federal Land Acquisitions states, "The yield capitalization method has limited use in an eminent domain setting because it requires the appraiser to forecast a number of different factors into the future such as income change, holding period, property value at the end of the holding period, and the yield rate or discount rate." (Page 121)

In chapter 10, devoted to the "Sales Comparison Approach to Value," the reader will find material addressing the peculiarities of the use of this approach in condemnation appraisal. For example, there are sections on the admissibility of comparable sales data (15) and the use of the sale of subject property. Further, the discussion addresses related court rulings, and provisions in the Uniform Standards of Professional Appraisal Practice (USPAP), and the Federal Highway Administration's Appraisal Guide, (16) are included in the discussion.

The topics of comparability and comparison adjustments are addressed in the context of condemnation appraisals and their use in litigation. Interestingly, listings and options are inadmissible in some jurisdictions in the approaches but usually may be used in market analysis. (Page 125) This chapter also includes material on consideration of cash-equivalent sales (use of non-cash sales and financing adjustment) and the use of sales to government entities in condemnation appraisals.

"Subdivision Development Analysis" is the focus of chapter 11; subdivision development analysis also has been called the development approach, the anticipated use method, the lot method, and the developer's residual approach. The land valuation method as described here may be appropriate for condemnation under some circumstances, although the text notes there have been confusion and controversy in the courts regarding this approach. It states, "Subdivision development and land residual techniques have been harshly criticized in most jurisdictions. Many courts will exclude an appraisal using either technique." (Page 111) (17)

This chapter examines the applicability of this valuation method in lieu of the sales comparison approach as well as the appraisal procedure involved. The subdivision analysis must be supported by a conclusion of near-term development and consider the three phases of development: the entitlement phase, construction phase, and absorption phase. Solid, well-documented support for amounts, assumptions, rates, and highest and best use is critical, and this is stressed in the discussion. Information is provided concerning court responses to the use of this technique and its acceptability. The chapter demonstrates this approach using a case study of a partially developed property, with example presentations and calculations. A discussion of the impacts of time lag and development risks completes the chapter.

Chapter 12 deals with the "Construction of the Public Improvement," particularly the influence of the proposed public improvement on the value of the remainder parcel in a partial taking. As stated on page 153,
   Historically, the value of a remainder property in a partial
   taking case was analyzed under the assumption that
   the public improvement was complete and operational
   on the date of valuation. Because of the large size and
   high costs of contemporary public projects and the relatively
   long time that lapses between the land acquisition
   and completion of the public improvements, it is
   now common to analyze the value of a remainder property
   in its physical condition as it exists on the effective
   date, giving consideration to the proposed public construction
   and its anticipated effect. [Emphasis added]


This, of course, varies somewhat from state to state.

The chapter delves into the importance of clear, specific knowledge about the larger parcel, the part taken, and the remainder parcel, including understanding and visualizing the after-taking situation, particularly the remainder parcel (its size, configuration, toward/from visibility, access). This involves understanding the location of all corners and boundaries, right-of-way lines, edge of shoulder of the roadway, edge of pavement, access lines and points, (18) construction limits, and, importantly, any temporary construction easements. (19)

A part of the chapter is devoted to engineering, with other portions getting into property staking and inspection, overhead use (such as utility lines), and surface and subsurface uses. Examples are shown and discussed, putting meat on the bones of information. Other sections include discussions on the importance of visualizing the before-take situation and the after situation. Such visualizations, and the ability to understand and describe them in an appraisal report, are vital to a well-supported valuation and credible report.

The narrative flows naturally into chapter 13 on "Damages in Partial Taking Cases." Critical concepts addressed here include both valuation of the remainder parcel and damages to the remainder parcel. Several situations and conditions are presented to illustrate potentially important points, including appraisers' consideration of the availability of replacement land in general, although they cannot consider the availability and cost of acquiring any other specific parcel in estimating a cost-to-cure adjustment. (Page 172) The chapter provides a list of "dos and do nots" under "Guidelines for Analyzing Damages," an exhibit on page 174. Other major topics in this chapter: the condemnor's use of the land taken (effect on remainder of the larger parcel not taken), the valuation procedure involved, and causes of damages with helpful case situations and illustrations. Several causes of damages are examined, including lack of access, size and shape, change in grade, and proximity to the public improvement.

Not all damages are compensable. For example, compensation is not typically awarded for changes in traffic patterns that increase or decrease traffic; temporary blockage of access; deprivation of legal access, light, view, and air caused by a newly constructed limited-access highway; construction of improvements in a preexisting right-of-way (e.g., medians, noise walls); loss of business; tenant relocation; moving of personal property; and frustration of an owner's plans. (20) Further, the chapter includes coverage of dangerous consequences of public improvements and access, circuitry of travel, and diversion of traffic. The chapter is well supported with over 40 source citations in footnotes.

Types and influence of benefits are addressed in chapter 14, "Benefits--General and Special." The discussion notes that public improvements (21) may have benefits (22) to the partially taken property in the after situation, i.e., the remainder parcel. Benefits are considered only in the case of partial acquisitions. The benefits may be general, accruing to the community at large, or may be special, relating specifically to the remainder property after the taking; however, "The distinction between general and special benefits is largely case-specific, making broad categorizations difficult." (Page 193) Several federal and state court cases are cited to assist in understanding the crucial distinction. The distinction may be important because identified special benefits may offset value loss to the condemnee. The text advises, "In light of the various cases and treatises written on the distinction between special benefits and general benefits and attempts to apply that distinction to a particular factual situation, the best advice for appraisers may be to seek competent legal instruction." (Page 195)

A section covers the rules of benefit offset, with a listing of the five benefit offset rules (Figure 14.1) and the reason for the five rules. There is some variance from state to state; Table 14-1 shows the rule application for each state. To help understand the distinctions, benefits are reviewed with examples and applications. The appraisal procedures involved in benefits cases make up a section of the chapter, with information about estimating benefits incorporated with examples and illustrations.

"Easements" and easement valuation is the grist of chapter 15. (23) "An easement is usually the right to use a particular parcel of land, or a portion of a parcel of land, for stated purpose without owning the underlying fee.... An easement is a right or interest separated from the other rights in the bundle of rights, defined in terms of time and space." (Page 211)

Easements come in a variety of flavors and toppings. In some cases, an easement may be a prohibition, rather than permission. In some situations, an easement may have to do with air rights, i.e., property use permitted or prohibited above the land or site surface. Easements may be created to make a corridor for a particular use. They may also provide for prohibition of some use(s) and thus be restrictive. Easements in gross affect several parcels; appurtenant easement, on the other hand, are usually created to the benefit of a particular parcel. Further, easements create estates. The owner of an easement has a dominate estate; the owner of the underlying fee has a subservient estate. (Page 217)

Frequently in condemnation for roadway or other public improvement projects, construction is involved and a limited-time construction easement is necessary; this is often referred to as a temporary construction easement or temporary easement. These are usually for a specified limited time or terminate upon an event, such as completion of the public improvement construction.

This chapter also contains sections on easement concepts such as easement occupancy; floating construction easements; specialty easements, such as flowage easements, aviation easements; and preservation easements, such as historic preservation, scenic view preservation easements, and conservation easements. Conservation easements, in particular, can involve a variety of land restrictions, such as limitations on land use, density, development of auxiliary structures, building size, vegetation management, water use, and other restrictions that may affect value. (Pages 212-217)

The influence of easements on market value is addressed in the section on "value considerations," which discusses the comparison of before-the-easement value with after-the-easement value to estimate the impact of the easement. The text notes, "In jurisdictions using the state rule (i.e., the taking plus damages rule), appraisers will be required to analyze the value of the easement interest acquired plus damages to the remainder, it any." (Page 217) Illustrations and cases are discussed involving easements, present and future utility, and related matters that are helpful to the understanding of easements and valuation in condemnation contexts. Nominal acquisitions and existing easements are also addressed in this well-documented chapter. (24)

"Inverse Condemnation and Regulatory Takings" are the focus of chapter 16. In inverse condemnation, the legal action is initiated by the landowner as plaintiff and government is the defendant; i.e., the roles of property owner and government are reversed. There is a distinction between inverse condemnation and eminent domain, which is a right of the sovereign solely. Inverse condemnation is the exercise of the right of a landowner to recover "just compensation for a taking when condemnation proceedings have not been instituted." (25)

Inverse condemnation generally may take place when there is (1) the physical invasion of private property by the government or by a third party under authority of the government; or (2) the overregulation of land use by the government. (Page 229) (26) Inverse condemnation may be related to physical intrusion, elimination of essentially all economic uses, significant impact on investment-backed expectations, or the relationship between the regulation or requirement and the articulated government interest. The claims frequently involve "challenges to building permit denials, rezoning denials, wetland fill permit denials, development rights denials, and development permit conditions and exactions." (Page 230) The text provides citations to a number of court cases. (27)

Chapter 17 concentrates on "Writing the Report," with important focus on condemnation appraisal report provisions in the Uniform Standards of Professional Appraisal Practice, the Uniform Appraisal Standards for Federal Land Acquisitions, the Federal Rules of Civil Procedure, state statute, agency, or other client requirements. Topics covered include report content, report appearance, and report review. The material includes some helpful recommended resources for appraisers and reviewers. (28)

The book continues with more suggestions for appraisers in "Preparation for Trial," chapter 18. The covered topics include selection of the appraiser, working with the condemnor or condemnee client's attorney, whether appraisal reports need to be updated for trial, and attorney review of the appraisal report and attorney-appraiser conferences. The chapter also includes information about the discovery process set out in Rule 26 of the Federal Rules of Civil Procedure, demonstrative evidence (exhibits and presentation aids), calculations and verification, and the importance of mock examination. The discussion of these topics flows right into chapter 19, "The Expert Witness."

"The Expert Witness" chapter provides good background information and recommendations for the expert witness providing testimony. Helpful material is provided about the topics of burden of proof and definitions of expert and expert witness as well as the roles of, duties of, and limitations on the parties involved. Specific sections include material about the appraiser's attendance in court; preparing to testify, and the basics of direct examination; qualifying as an expert; providing descriptions of the valuation process, the scope of work, and various other parts of the appraisal process and appraisal report; cross-examination; examples of presenting reconciliations; redirect testimony; final argument; and an interesting section on "One Hundred Questions to Worry a Weak Witness." (Page 279)

"Liability Risks for Appraisers in Condemnation," chapter 20, was written by Peter Christensen, J D, general counsel of LIA Administrators & Insurance Services. Some appraisers avoid condemnation work fearing that if the other side of such litigation is not happy with the appraisal, they will sue the appraiser. The author of this chapter lays out the legal elements of a professional negligence claim (the basic items involved), witness immunity and the limits of witness immunity, common real-world claims, how to avoid becoming a defendant, and the engagement agreement (with suggestions on content). In a nutshell, Mr. Christensen offers some practical advice and suggestions appraisers involved in, or potentially involved in, litigation should not overlook. (29)

The book wraps up with a sample easement form having to do with a transmission easement, shown in Appendix A, and an appraisal report documentation checklist, shown in Appendix B. The checklist is helpful since it is prudent for appraisers in all areas of practice to use checklists, particularly for appraisal process components, such as agreements for services, property "appraisal inspections," (30) sale and data confirmations, and appraisal file and appraisal report contents.

Recommendation. For appraisers involved in condemnation appraisal work--either as staff or as an independent practitioner--Real Property Valuation in Condemnation is an essential. For appraisers only occasionally involved in condemnation appraisal work, the book is of equal importance because it is imperative to stay up-to-date and refresh knowledge in condemnation appraisal inquiries and valuation assignments.

The text is well-written and clearly presented, with critical information for appraisers and attorneys involved in condemnation proceedings. The illustrations in the exhibits usually include plat or plot plan diagrams that are quite good.

The book covers a host of subtopics in each of its twenty chapters and addresses a mass of specialized terms and concepts. Unfortunately, this combination text and reference book has no index to help the reader locate information and key concepts throughout the discussion. This problem is alleviated in the PDF version of the text, which is keyword searchable.

Dan L. Swango, PhD, MAI, SRA, is president of Swango Real Estate Counseling and Valuation International in Tucson, Arizona. He is experienced in valuation and consulting involving equity investment, debt security, risk reduction, profit optimization, estate planning and settlement, buy/sell opportunities, and eminent domain. Swango is an instructor and communicator with domestic and international experience. He is namesake of The Appraisal Journal's Swango Award, past Editorial Board chair and editor-in-chief of The Appraisal Journal, and a current member of the Journal's Review Panel. Contact: danswango@yahoo.com

If you know of additional resources of interest to real estate analysts and valuers--or would like to suggest topics for this column--please contact the author.

Appendix Additional Reading on Condemnation

To supplement the information presented in Real Property Valuation in Condemnation, the publications listed below are suggested as additional reading on condemnation.

Articles

* "Addressing the Larger Parcel--One of the More Vexing Problems Facing Condemnation Appraisals Today," Orell Anderson, Jack Williamson, and Alexander Wohl, Right of Way (March/April 2016): 25-27.

* "Agency taking property for public use may rely on appraisal of fair market value to assess just compensation," in Alan M. Weinbergerand Megan Murphy, "Cases in Brief," The Appraisal Journal (Fall 2015): 268.

* "Analyzing Market Lease Rate Adjustments," Timothy J. Holzhauer, Right of Way (May/June 2016): 35-38.

* "Appraising Railroad Corridors for Recreational Trail Use," Jeffrey K. Jones, The Appraisal Journal (Summet 2014): 206-215.

* "The Art of Easements," Bradford B. Kuhn, Valuation (Third Quarter 2017): 28-31.

* "Avoiding Double Counting in Compensation--Coordinating Business Valuation and Real Estate Appraisals in Expropriations," Prem Lobo and Catalina Anghel, Right of Way (November/December 2017): 31-34.

* "A Closer Look at Proximity Damages," Ted Tatos, Troy Lunt, and Mark Glick, Right of Way (March/April

2016): 32-36.

* "Conservation Easements," Lance W. Dore, Right of Way (July/August 2018): 43-45.

* "Daubert and Qualification of the Appraisal Expert Witness," Richard W. Hoyt, Robert J. Aalberts, and Percy Poon, The Appraisal Journal (Summer 2010): 283-291.

* "Denying a property owner access to appraisals of other properties subject to eminent domain prohibited property owner from having a fair trial," in Scott B. Mueller and Alan M. Weinberger, "Cases in Brief," The Appraisal Journal (Fall 2016): 280.

* "Don't Let Size Fool You--Even Seemingly Minor Acquisitions Can Cause Legal Challenges," Michael F. Yoshiba, Right of Way (November/December 2017): 47-48.

* "The Effect of High-Voltage Overhead Transmission Lines on Property Values: A Review of the Literature Since 2010," Orell C. Anderson, Jack Williamson, and Alexander Wohl, The Appraisal Journal (Summer 2017): 179-193.

* "Eminent domain taking of parking lot constitutes inverse condemnation of related suburban office building," in Scott B. Mueller, "Cases in Brief," The Appraisal Journal (Winter 2018): 7.

* "Future use of permanent easement is not relevant to determination of fair market value of easement," in Alan M. Weinberger and Megan Murphy, "Cases in Brief," The Appraisal Journal (Fall 2015): 265.

* "In eminent domain proceeding, exclusion of prenegotiation appraisal and examination of appraiser is reversible error," in Alan M. Weinbergerand Megan Murphy, "Cases in Brief," The Appraisal Journal (Summer 2015): 177.

* "Is Across the Fence Methodology Consistent with Professional Standards?" John T. Schmick and Jeffrey K. Jones, The Appraisal Journal (Fall 2014): 318-329.

* "Just compensation does not include compensation for damages to business located on condemned property," in Alan M. Weinberger and Megan Murphy, "Cases in Brief," The Appraisal Journal (Summer 2015): 171.

* "Land Uses and Value," in Dan L. Swango, "Resource Center," The Appraisal Journal (Spring 2016): 151-162; includes eminent domain and condemnation information resources.

* "Licenses versus Leases--Are Swap Meet Vendors Eligible for Relocation Benefits?" Michael F. Yoshiba, Right of Way (November/December 2016): 43-44.

* "Parcel of land can be divided and valued as separate economic units in eminent domain proceeding," in Alan M. Weinberger and Megan Murphy, "Cases in Brief," The Appraisal Journal (Fall 2015): 264.

* "Part and Parcel--Defining the Larger Parcel in Eminent Domain and Regulatory Takings Cases," Bradford B. Kuhn, Valuation (Second Quarter 2015): 20-23.

* "Pipelines, Eminent Domain, and Damages to the Remainder: A Texas Lawsuit Trilogy," Joseph B. Lipscomb, and J. R. Kimball, The Appraisal Journal (Winter 2017): 28-39.

* "Premium Pricing--The Value of Transit Premium Is Key When Assessing Project Benefits in Eminent Domain Actions," Bradford B. Kuhn, Valuation (Third Quarter 2016): 24-28.

* "Presettlement appraisal admissible in eminent domain proceeding as evidence of value," in Alan M. Weinbergerand Megan Murphy, "Cases in Brief," The Appraisal Journal (Fall 2015): 263.

* "Resources for Real Estate Analysts and Valuers: New Lum Library Acquisitions and Eminent Domain Resources," in Dan L. Swango, "Resource Center," The Appraisal Journal (Fall 2015): 334-340.

* "Rethinking Fee Simple," Michael V. Sanders, Right of Way (May/June 2018): 30-32.

* "Scenic Easements--Understanding a Challenging Appraisal Process," Kema Williams, Edward Singer, and Julita De Leon, Right of Way (March/April 2018): 30-32.

* "The Spirit of Eminent Domain--A Historical Accounting of Honest and Fair Negotiations," Mazie Leftwich, Right of Way (November/December 2017): 38-41.

* "Trial by Deposition--Lessons Learned in the Hot Seat," Val K. Hatley, Right of Way (January/February 2017): 31-33.

* "When valuing partial taking, appraiser must consider contributory value of improvements on remainder in valuing part taken," in Alan M. Weinberger, "Cases in Brief," The Appraisal Journal (Summer 2014): 190.

Books

* Applications in Litigation Valuation: A Pragmatist's Guide, Jeffrey A. Johnson and Stephen J. Matonis (Chicago: Appraisal Institute, 2012); available in the Lum Library; for purchase Information see https://bit.ly/2rFdNAI.

* Appraisers in Arbitration, Paula K. Konikoff with Peter T. Christensen (Chicago: Appraisal Institute, 2018); available in the Lum Library; for purchase information see https://bit.ly/2TG6Vm4.

* Corridor Valuation: An Overview and New Alternatives (Chicago: Appraisal Institute, Appraisal Institute of Canada, International Right of Way Association, 2019); available in the Lum Library; for purchase information see https://bit.ly/2XJqcSD.

* Eminent Domain: A Comparative Perspective, ed. Iljoong Kim, Hojun Lee, and llya Somin (Cambridge: Cambridge University Press, 2017). This book uses a common framework for comparative analysis of the law and economics of eminent domain in several countries and addresses various laws and social issues in the exercise of government eminent domain power.

* Eminent Domain: A Handbook of Condemnation Law, William Scheiderich, Cynthia M Fraser, and David Calles (Chicago: American Bar Association, 2011); available in the Lum Library.

* The Law of Eminent Domain in the United States, Carman Fitz Randolph; originally published in 1894, this historic treatise on eminent domain is available on the internet from numerous publishers in various formats.

* Principles of Right of Way, 4th ed. (Gardenia, CA: International Right of Way Association, 2012); available in the Lum Library; review and commentary available in "Resource Center," The Appraisal Journal (Fall 2015): 336-338.

* Regulatory Takings, 5th ed., Stephen J. Eagle (LexisNexis: 2018); includes case law and statutes current through September 2018; information on publisher's website at http://bit.ly/2XtFuLf.

* Taking Property and Just Compensation, ed. Nicholas Mercuro (Kluwer Academic and Springer Netherlands, 2012).

* Taking Sides on Takings Issues, Thomas Roberts (Chicago: American Bar Association, 2003).

About This Column

Appraisers who value properties subject to eminent domain may be called on to explain and defend their analysis and opinions at hearings, depositions, or in court. This edition of Resource Center looks at Real Property Valuation in Condemnation, a resource that offers appraisers guidance, and gathers, distills, and illustrates information on eminent domain assignments.

(1.) Also see Richard W. Hoyt, Robert J. Aalberts, and Percy Poon, "Daubert and Qualification of the Appraisal Expert Witness," The Appraisal Journal (Summer 2010): 283-291.

(2.) Many condemnation appraisals in fact are not used in court since settlements often are negotiated before need for a trial.

(3.) Reflecting different scenarios, particularly after the taking.

(4.) It reports that the first recorded condemnation action occurred in 871 BC, when a condemnor, King Ahab, attempted to acquire Naboth's vineyard. Naboth refused to sell or trade, so King Ahab exercised the right of eminent domain. Ahab's wife, Jezebel, became the trier of fact. As it turned out, King Ahab did exercise the right of eminent domain and obtained title to the vineyard. The compensation? Zero; in fact, Naboth was stoned to death for his refusal to sell the land voluntarily, (ref. the Holy Bible, RSV. 1 Kings 21.)

(5.) The unit rule, sometimes called the undivided fee rule, means one award from the condemnor for all interests in the property. Regardless of how many interests there are in the property (e.g., lessor and lessee[s]), only one amount is paid and then divided. For additional discussion of the unit rule, see Interagency Land Conference, Uniform Appraisal Standards for Federal Land Acquisitions, 2016 ed. (Washington, DC: US Government Printing Office, 2016), particularly sections 4.2.2, 4.4.4.4, and 4.8.1, available at http://bit.ly/FedLand.

(6.) See Appraisal Institute, The Dictionary of Real Estate Appraisal, 6th ed. (Chicago: Appraisal Institute, 2015), s.v. "highest and best use"; Appraisal Institute, The Appraisal of Real Estate, 14th ed. (Chicago: Appraisal Institute, 2013), 333; and the well-known Black's Law Dictionary, 10th ed. (2014), s.v. "highest and best use." Appraisers also need to be aware of state statutes and court cases addressing value definitions.

(7.) The four tests involved in finding highest and best use consider whether the uses are (1) legally permissible, (2) physically possible, (3) financially feasible, and (4) maximally productive. The Dictionary of Real Estate Appraisal, 6th ed., s.v. "highest and best use." Some definitions of highest and best use have included these criteria; others have not, and in essence simply say that highest and best use is the use with the highest present value.

(8.) Highest and best use as improved involves considering alternatives for a currently improved property--whether to retain the improvements, modify the improvements (conversion, renovation, or alteration), or demolish the improvements and redevelop the land.

(9.) Highest and best use is limited to uses in the economic realm (most productive, most profitable) and does not include considerations from other realms such as socially beneficial uses based on preservation, conservation, or historical interest. Also, the highest and best use or value to the condemnor government entity is not the basis for valuation.

(10.) Consistent use is the thought that the site cannot be valued based on one use and the improvements valued based on another use.

(11.) Interim (or transitional) use is the "temporary use to which a site or improved property is put until a different use becomes maximally productive." The Dictionary of Real Estate Appraisal, 6th ed., s.v. "interim use." Keep in mind that value comes from productivity (tangible or intangible); thus maximally productive means highest value.

(12.) Also see the Uniform Appraisal Standards for Federal Land Acquisitions, 2016 ed.

(13.) For an example, see the case summary "Project influence doctrine applies where property has always been contemplated for condemnation," in "Cases in Brief," The Appraisal Journal (Summer 2015): 175.

(14.) Many law firms have posted articles on the internet regarding private use restrictions--for example, see "Private Restrictions on Property," https://bit.ly/2T0o9GM; "Private Land Use Restrictions," https://bit.ly/2R9fqEK; and "Easements and Restrictive Covenants," https://bit.ly/2Sc1yHd.

(15.) "An exception to the hearsay rule--i.e., the generally accepted rule that testimony or documents quoting a person who is not in the courtroom are not admissible--is allowed in federal courts under the Federal Rules of Evidence. This exception allows an expert to testify to the factors that the expert's opinion is based on, if the facts or data are 'of a type reasonably relied upon by experts in the particular field in forming opinions or inferenced upon the subject.'" (Page 124 in reference to Federal Rule of Evidence 703)

(16.) See Appraisal Standards Board, Uniform Standards of Professional Appraisal Practice, 2018-2019 ed. (Washington, DC: Appraisal Foundation, 2018), available at http://bit.ly/USPAP2018; and Federal Highway Administration (FHWA), Appraisal Guide (1993), available at http://bit.ly/FHWAguide; also recommended reading, the FHWA's Process Review Guidelines for Joint State/FHWA Review of Appraisal and Appraisal Review, available at https://bit.ly/2QHJVSE.

(17.) For an example, see the case summary "Development cost approach may not be used to value property that has already been platted and developed," in "Cases in Brief," The Appraisal Journal (Summer 2015): 172.

(18.) Including access problems or benefits arising from the use of traffic signals, signs, and medians.

(19.) More on temporary construction easements is found in chapter 15 covering easements.

(20.) See pages 187-188. For a good example of noncompensable damages, see the Michigan Department of Transportation list of noncompensable items available at https://bit.ly/2QH6kj3.

(21.) Improvements in the general sense, i.e., not just buildings and man-made structures but improvements in the sense of betterment. Nonstructural, man-made benefits, for example, may include improvements to access, visibility, drainageways, topographic changes, and such.

(22.) A benefit is defined as "the advantageous factors that arise from a public improvement for which private property has been taken." See page 193 citing The Dictionary of Real Estate Appraisal, 6th ed., s.v. "benefits."

(23.) The term servitude is used in some countries; for all practical purposes, this is the same as easement.

(24.) For additional reading on easements, their characteristics, and types, see "Easement," Wikipedia, https://bit.ly/2R47fcM; "Easement," Cornell Law School Legal Information Institute, https://bit.ly/2rGbY6b; "What Is Easement?," Black's Law Dictionary, Free 2nd ed., https://bit.ly/2GoqM3G; "Easement," LegalDictionary.net, https://bit.ly/213AZol; and "Interests in Real Estate: Easements: Creation, Scope and Termination," LawShelf, https://bit.ly/2S1TM2A; as well as The Appraisal of Real Estate, 14th ed., and The Dictionary of Real Estate Appraisal, 6th ed.

(25.) Page 230, citing The Appraisal of Real Estate, 14th ed., and Review Theory and Procedures: A Systematic Approach to Review on Real Property Valuation (Chicago: Appraisal Institute, 2015).

(26.) Also see Ricky J. Nelson, "Inverse Condemnation Actions Present Unique Problems When Determining 'Just Compensation,'" 2010 BYU L. Rev. 2315 (2010), https://bit.ly/2SaRy0n (downloadable PDF).

(27.) Including the US Supreme Court case First English Evangelical Lutheran Church v. Los Angeles County, 482 U.S. 304 (1987), where the Court found that inverse condemnation is a proper remedy for overly burdensome use control. An interesting court case concerning inverse condemnation can be found in "Cases in Brief" in The Appraisal Journal (Spring 2017): 84.

(28.) These resources include The Appraisal of Real Estate, 14th ed.; Review Theory and Procedures: A Systematic Approach to Review on Real Property Valuation; the Uniform Appraisal Standards for Federal Land Acquisitions; Federal Rules of Civil Procedure, particularly Rule 26(a)(2) (B), which can be downloaded at https://bit.ly/2SYSCVn; and content related to the Uniform Standards of Professional Appraisal Practice (USPAP), 2018-2019 ed., especially the Scope of Work Rule, Jurisdictional Exception Rule, and Advisory Opinion 3.

(29.) Note, this chapter was reprinted in the Fall 2018 issue of The Appraisal Journal, 298-305.

(30.) The term appraisal inspection, or any of several alternative terms, helps to differentiate between the inspections made by property inspectors and compliance inspectors, and those inspections made by appraisers as part of a valuation assignment. Inspection is a term that needs some definition and distinction, with its limitations made clear in the appraisal report to avoid misunderstandings.
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Title Annotation:Resource Center
Author:Swango, Dan L.
Publication:Appraisal Journal
Geographic Code:1USA
Date:Jan 1, 2019
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