A common question property owners ask me is what the condemning authority, such as the NCDOT or other government agency, has to pay when their house/land/business is being taken.
If I had a nickel for every time my clients have wondered aloud: “Why is my offer so low? Can’t they see my property is worth so much more because it could be turned into a [strip mall, subdivision, parking lot, etc.]?”
The simple answer is, quite often, “No, they don’t see why your property may be worth more.” That’s where an experienced eminent domain attorney may prove helpful in taking the government’s blinders off.
How Does the NCDOT Determine What a Fair Offer Is?
In North Carolina, a condemning authority is required by law to pay just compensation – or a fair offer – for any property they take. In other words, they can’t try to offer you $1 for your property unless that is what any other typical buyers would pay.
When the condemning authority decides to purchase land for a project, they usually have it appraised – and that becomes the basis of the property’s fair value. In an ideal world this appraisal would be error-free and would take into account all the property’s reasonable uses. In reality, errors in this calculation are not unheard of, and potential uses can often be overlooked.
This is not to say that the condemning authority must pay for, or even consider, all potential uses. A fair value is based on what a typical buyer in the local market would do. A typical buyer might be willing to purchase a property and wait five years for it to be developed until the investment pays off. On the other hand, a property might be perfect for development in 20 years, but most buyers would want a discounted price if they had to wait that long.
How does the NCDOT arrive at a fair value?
One way an appraiser establishes value is by determining the highest and best use of a property. This is generally the use that would result in the highest sales price. However, a current but lower use might be considered the “highest and best use” if it would cost more to change its current use than the value gained by paying for potential use in the future (see Example of “Highest and Best Use” below).
The condemning authority’s appraiser, therefore, has only to consider the current use and those potential uses of a property which result in a better highest and best use (higher property value) scenario. They must take into consideration what a reasonable buyer would think the property is capable of, and what that reasonable buyer would likely pay for it at the time of sale.
If an owner can show that their property is suitable for a higher use, and that use is reasonable, the condemning authority should compensate the owner accordingly.
Example of “highest and best use”
Let’s say a condemned farmland property was appraised at $300,000, but experts hired by an eminent domain attorney proved it could have been developed into an $800,000 subdivision. If it costs $200,000 to get the property ready for subdivision development, that’s an additional $300,000 the farmer would be owed. In the end, the farmer would receive a total of $600,000, doubling the condemning authority’s initial offer.
$800,000 appraisal value – $200,000 costs to ready =
$600,000 owed to farmer
Reasonableness is an important factor
An owner can’t simply demand to be paid more for land because he or she thinks it could be used for a much better (higher value) purpose. The argument falls back to reasonableness. It is probably not reasonable to expect to be compensated for vacant farmland as if it were a full subdivision if it has no sewer or water connections, and other similar subdivisions are falling victim to foreclosure. A reasonable person would not invest in that, and therefore a reasonable buyer would likely pay far less for the property.
Reasonable people can often disagree on what a property’s fair value should be. However, if it’s your property, you shouldn’t let the condemning authority convince you that your opinion is wrong or unreasonable.
It’s usually prudent to have an attorney who is experienced in eminent domain law review your case to help determine what a fair offer ought to be.
While the property was indeed zoned as the NCDOT claimed, we dug much much deeper and uncovered documentation that the property was also being considered for a higher use in the future. This rendered it more valuable. We went even further by steadfastly maintaining that the property owners had been holding the property until they could sell it with adjoining property (which was not condemned) as one larger parcel – keeping that future higher value use in mind.
In the end, the NCDOT reconsidered, agreed with our position, and wrote our client a check for double their original offer.1
Former NCDOT “insiders” on staff
Four of our eminent domain attorneys – Stan Abrams, Jason Campbell, Ken Sack, and Kevin Mahoney – previously worked as Assistant Attorneys General for the North Carolina Department of Justice representing the NCDOT in condemnation matters. They are an invaluable resource to our clients as we endeavor to present their cases in the best possible light.