If you find yourself under the threat of condemnation, the first thing you should do is seek legal advice from qualified and experienced attorney. Condemnation is a complex legal process, and it is in your best interest to have a professional by your side.
Eminent domain grants the government the power to take private property for purposes that will benefit the public.
When land or a building is taken through eminent domain, the owner is entitled to receive just compensation. But while the concept of just compensation is relatively simple in theory, it can be quite complicated in practice. This often leads to valuation disputes between the government and the owner. And one of the leading causes for disputed valuations is the concept of “Highest and Best Use.”
What is highest and best use?
One major determinant of fair market value (the basis of just compensation) in a condemnation action is the concept of highest and best use.
Highest and best use is generally defined as the use of land or property that produces the highest value. And while it may be that the highest and best use of a particular parcel of law is its’ current use, that is not always true. Rather, an appraiser must consider both the current value of the property at issue as well as all foreseeable and potential uses that meet certain highest and best use tests.
How do you determine the highest and best use of property?
Appraisers consider four important factors when testing for and formulating an opinion on the highest and best use of a property.
They are as follows:
1. What is Physically Possible
To identify which uses are physically possible for the site in question, the appraiser must consider the physical attributes of the property, such as its location, size, shape, topography, soil type, accessibility, and even the weather patterns in the area.
This is because a property’s geological characteristics often determine whether or not it’s possible to use or develop a particular property in a certain way.
2. What is Legally Permissible
The next test focuses on legal permissibility and the restrictions that may affect or dictate how the property can be utilized. This inquiry includes not only zoning restrictions, but also building codes, master plans, subdivision regulations, many other land use regulations, restrictive covenants, and the like.
Curiously enough, the concept of legal permissibility can also take into account whether there is a reasonable probability that regulations or restrictions can change. This makes it incumbent upon appraisers to investigate whether a regulation which exists today has the potential for being modified tomorrow, thereby allowing greater use of the property at issue.
3. What is Financially Feasible
When certain uses are found to be both physically possible and legally permissible, the appraiser then addresses the issue of financial feasibility. This step in the process usually involves market analysis, operating income projections, and cash flow estimates.
A potential use is considered financially feasible when its net present value (NPV) is positive, which means that the benefits of the project are greater than its costs.
4. Maximally Productive
Uses that satisfy the first three tests will be subjected to the final test – the test for maximum productivity.
Here, proposed uses that are physically possible, legally permissible, and financially feasible are ranked according to their value or rate of return, while also taking into account the risks associated with a specific use.
Generally, the use with the highest risk-adjusted internal rate of return (IRR) is the best use for that property.
What should I do in case the government decides to take my property
If you find yourself under the threat of condemnation, the first thing you should do is seek legal advice from qualified and experienced attorney. Condemnation is a complex legal process, and it is in your best interest to have a professional by your side.
An experienced eminent domain lawyer can help you pursue all available avenues to maximize the value of the property impacted by the taking which will result in greater just compensation to you.
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