Just Compensation: Is It Really "Just"?
The just compensation remedy is provided by the Fifth Amendment's Takings Clause and is usually considered to be fair market value. However, what the government considers just compensation may not be regarded as ‘just’ by the person whose property is being acquired. In California, the offer of just compensation is usually based on an appraisal approved by the governmental agency (or utility) where the project is taking place.
Appraisals are estimates of value, not facts. Reasonable people (and appraisers) can disagree on what the valuation should be and, more often than not, the negotiated settlement is more than the initial offer. In California, property owners have the right to obtain their own appraisal and the agency making the offer must reimburse the costs of the owner’s appraisal up to $5,000. The nuances here are that the owner does not have to provide a copy of the appraisal, and this doesn’t apply to utilities.
It is a general belief among the public that the government always ‘lowballs’ appraisals, so agents have one strike against them when they meet to discuss the offer. It is helpful to have prior approval from the client to settle within 20% of appraised value. It is also helpful to be able to offer a bonus if the property owner will sign within 30 days or so, an incentive plan that Caltrans pioneered.
Time is always of the essence in real estate dealings, and lots of back and forth between owners and clients is not usually productive.
Additionally, there may be information that impacts value that the appraiser is not initially aware of, such as:
- leases of portions of property that are going to be acquired (leases not being public record)
- a retaining wall that needs to be removed which is made of imported Italian brick
- the impacted tree is a Torrey Pine, a protected species
From time to time, there are also non-financial considerations that help in reaching a settlement quickly. For example, we once worked with a property owner who had a grandparent buried in the backyard of a residence intended to be acquired for a road widening. The sentimental value of that particular plot of land assisted in negotiations and ultimately impacted what the property owner considered ‘just.’At the end of the day, ‘just compensation’ boils down to what the property owner and government feel is fair and equitable.