Once a property owner realizes that an eminent domain taking is inevitable, the next thought transitions to “how much just compensation should be paid for what is being taken?” To answer that question, most people think “hire an appraiser”. While that is true, most owners do not realize that the full answer is actually much more complicated than that. First of all, not every appraiser will be right for the job. Second, the appraiser’s valuation may require other expert input to correctly determine the amount of just compensation. Following is a list of different experts that an owner may need for an eminent domain case together with considerations surrounding the hiring of each one.
Without question, an appraiser is the most important expert an owner will need to establish just compensation for a taking that has occurred. In fact, it is difficult to imagine a situation where an owner could prevail in an eminent domain case without utilizing an appraiser.
There are important qualifications to consider when selecting an appraiser for an eminent domain case:
- Experience with the property type that is being taken
- Understands the rules of eminent domain
- Ability to write a comprehensive, understandable appraisal report
- Ability to clearly articulate and explain concepts that are critical to the just compensation value
- Experience testifying in depositions and at hearings or trials.
- There are also important concepts in eminent domain that an appraiser needs to understand:
- Calculating severance damages
- Understanding the larger parcel rule
- Ignore the effects of the project when determining a before value
- Not limiting the highest and best use to the existing use of the property.
- While a qualified appraiser can learn these concepts, your case should not be the one where the learning occurs.
When determining the likely cost for an appraisal, many people focus on their experience with financing appraisals. What most people do not realize, though, is that an eminent domain appraisal involves more work than a financing appraisal. An eminent domain appraisal starts with a before value for the larger parcel affected by the taking. This would be analogous to an appraisal for a financing. Anytime that there is a partial taking, the eminent domain appraisal will also need the determination of severance damages or an after value. This is tantamount to doing a second appraisal. Furthermore, eminent domain appraisals may be subject to cross-examination in a hearing or trial. That possibility requires an appraiser to spend more time on the research and analysis than might be required for a financing appraisal. All of this means that the cost for obtaining a good eminent domain appraisal will be materially more than the cost for a financing appraisal. If there is no difference, beware of the quality of the appraisal that you will be receiving.
One way to avoid selecting the wrong appraiser for your case is to work with an experienced eminent domain attorney. That attorney will have worked with several qualified eminent domain appraisers who would be appropriate for doing the appraisal to determine just compensation in your case. Handling this process should be one of the things that your attorney “brings to the table”.
Real Estate Broker
After an appraiser, a real estate broker is probably the most common secondary expert that is utilized in an eminent domain case. Subjects that a broker can address as an expert witness include:
- Explaining the market in which the condemned property is located
- Explaining the features of the condemned property that would be particularly attractive to buyers if the property was offered for sale
- Explaining the characteristics of a typical buyer for the condemned property
- Explaining any problems that the remainder property will have when trying to sell it on the market
- If the remainder is sold soon after the taking, explaining the arm’s length nature of that sale
- Providing a market analysis showing likely sale price range and listing price if the broker was listing the property for sale.
- The foregoing is not intended to be an exhaustive list.
While an appraiser can testify to all of these things in his role as an appraiser, these are activities that are part of a broker’s everyday job. When any of these issues are critical to the valuation conclusion, the broker can provide very credible support to the appraiser.
On occasion owners will notice increased flooding following rainstorms after an eminent domain project has been completed. Anecdotal recollections by an owner, even when supported by pictures, will not satisfy the proof needed to connect such flooding to an eminent domain project. That can only be accomplished by using a hydrologist or hydrological engineer.
The hydrologist or hydrological engineer needs to evaluate whether the basin containing the condemned property or the flow amounts to the condemned property have been altered for various storm events after a project is completed. Many people mistakenly believe that this can only be accomplished when a flooding event occurs. But this is not true. A trained hydrologist can do the necessary analysis even in the middle of a drought. The important point to remember, though, is that, if flooding is affecting the remainder property, an engineer is required to analyze the flooding to support the damage claim caused by that flooding.
Whenever contamination effects a condemned property, the contamination needs to be evaluated in two ways. First, what are the costs associated with any cleanup or remediation? Second, if the existing use of the property continued because there was no eminent domain taking, would remediation even be required? The answers to these questions are critical to complete an appraisal of a condemned property that has contamination present. Those answers are provided by an environmental engineer.
There are two lines of decisions in this country that outline how contamination is to be considered in determining just compensation for a contaminated property that is acquired by eminent domain. In one line of decisions, just compensation for the acquired property is determined under the assumption that any contamination on the property was remediated prior to the taking. Anda citation. In the other line of decisions, just compensation is determined with the remediation costs to clean up the contamination incorporated in the calculation. Basil Ryan citation. Note, though, that only a small minority of states have even addressed this contamination issue. Consequently, for most states this is an issue of first impression. In those states there is no way of predicting which line of cases will be followed in that state.
On occasion a taking will encompass an existing mining operation or land that has a highest and best use for mining purposes. An appraiser will incorporate royalty rates and absorption rates to determine the value for just compensation. But the appraiser’s rates are meaningless unless the quality (royalty rates vary by quality) and quantity (absorption timeline varies by quantity) of the minable material is known. In these situations a geologist will be required to determine the quantity and quality of the minable material both before the taking occurred and after the taking has reduced the minable acreage or access to that remaining acreage. This expert can be fairly expensive depending upon the extent of borings that are necessary to produce a reliable analysis of the quantity and quality of the mineable material.
While underground gas storage facilities have been in existence for a long time, the proliferation of natural gas as a fuel source for power plants has increased the need for these facilities. An underground gas storage facility is most frequently a natural gas field formation that is depleted or nearly so. These depleted formations are re-engineered so natural gas can be pumped into them for later release when demand for natural gas is high.
The re-engineered formations are called gas storage reservoirs. The storage capability of the reservoir is a real estate asset known as storage rights. When a utility wishes to convert a depleted gas formation to a storage reservoir, it must acquire the storage rights for the reservoir from the landowners whose land is above the depleted formation. The valuation of the storage rights for a particular parcel of land is dependent upon the capacity of the reservoir and the extent of the reservoir that exists under the parcel of land. This information is determined by analyzing reservoir data. The expert qualified to do that analysis is a petroleum engineer.
The value of a parcel affected by a taking is based on the parcel’s highest and best use. Its highest and best use is not limited to the use which is either permitted or in existence at the time of the taking. If a non-existent use is the most valuable use for a parcel of property, that more valuable use will be the basis for the valuation. In that situation, though, the owner must establish that the non-existent use is reasonably probable.
To prove the reasonable probability, a planner or architect must be retained to analyze the applicable codes and regulations. If the planner or architect establishes that the more valuable non-existent use is reasonably probable, the appraiser can then incorporate sales and rental data associated with that more valuable non-existent use to complete the appraisal report for the condemned property. Without the opinion from the planner or architect, the appraisal report could be rejected by the court.
Where a dispute exists over the amount of land subject to a taking, a surveyor is needed to determine the extent of the land affected. This need most frequently occurs in cases of inverse condemnation caused by a physical invasion. Examples are trespassing with equipment or flooding caused by a government project or operation. When the extent of the invasion is known, the surveyor transposes that to a survey so that the extent of the taking can be quantified. The appraiser can then use this information to properly determine the amount of just compensation that is owed or the property affected by the physical invasion.
Frequently a just compensation analysis will incorporate a cost to cure. Two examples are the reconstruction of a new driveway to the building site where access has been changed or rebuilding a tiling system that has been severed by a road project. While an appraiser can incorporate cost estimates from cost services in the appraisal, many costs to cure are too unique to be credibly determined from a cost service. The best way to determine the amount for a cost to cure is obtaining an estimate from a contractor who specializes in providing the services. This contractor becomes an expert in your case. Make sure the estimate is sufficiently detailed to maximize credibility.
Where the cost to cure is an actual project that will be undertaken, these estimates may not cost the owner anything. If the cost to cure will not be pursued for any reason, the contractor will need to be paid for the time to create the estimate (effectively an expert report) just like any other expert witness.
This covers almost all of the experts you would potentially come across, in most cases, you will only need an appraiser for your case.