What is eminent domain and how does it impact real estate owners? What can you do if the government decides to take your property under eminent domain?
Eminent domain is the power of the government to take private property for public use after paying the owner just compensation. This power is available to the federal government, as well as state and local governments, when certain conditions are met. Eminent domain involves three elements:
The first element of eminent domain is to take, meaning that the government claims control over a property. This could also include interfering with the owners use and enjoyment of the land to the extent that it lowers its value, or makes it unusable. For example, the government could create an easement on the property, making it no longer useful; or it could block access for customers to get to a business establishment.
The next requirement of eminent domain is that the government must take it for some use that is for the public good. That means the public can benefit from it either through economic development of infrastructure such as roadways, utilities, and bridges.
Finally, the government must pay the property owner to compensate for any undue burden. This can be a point of contention if governments take private land and then turn around and sell it. The property owner may also argue that the intended purpose is not for the public good, or it is not sufficiently suitable for the public good. Determining “just compensation” can also become a point of contention. Both the government and property owner will hire appraisers to say what it's worth in case it needs to be challenged in court.
There are three types of “taking” that can happen with eminent domain:
If your property is located in a city with expanding infrastructure, it’s important to evaluate how desirable your property location is to the city and their plans to build there. If the government decides to take your property it will provide a condemnation notice and will negotiate a price.
You have the right to dispute the price in court. In the Fifth Amendment of the United States Constitution, when the government takes control of a property under eminent domain, the owner of that property has the right to receive fair market value. If the owner chooses to dispute the amount offered, they must present their case as to why the property is worth more. It’s important that property owners seek legal counsel with local knowledge who will consult with local experts on appraising, land planning, and zoning laws to build the case to prove why the property is worth more. It's important to understand that each state has its own laws regarding the state’s takings under eminent domain. In some states, if you don’t agree with the first appraisal, the state is required to pay for a second appraisal. In California, there is an appraisal cap of $5,000.
Determining what qualifies as “like-kind” property can be problematic. For this reason, it’s important to consult a qualified intermediary. The IRS states: “Like-kind property is property of the same nature, character or class. Quality or grade does not matter. Most real estate will be like-kind to other real estate. For example, real property that is improved with a residential rental house is like-kind to vacant land. One exception for real estate is that property within the United States is not like-kind to property outside of the United States. Also, improvements that are conveyed without land are not of like kind to land.”
If you’re a real estate owner, it’s important that you know your options when dealing with eminent domain. A local real estate lawyer can advise you on your best course of action should the government try to take your property under eminent domain law. Ultimately, the property will be taken for the property's fair market value established by the court, even if challenged in court.
Contact us today if you have an issue concerning eminent domain.