What is Just Compensation?
Just compensation refers to the compensation individuals receive when their property gets seized by the government for public use. For instance, during the construction of the national highway system in the 1950s, many homeowners experienced property seizures as the government needed the land to build the interstate highway system.
The remedy of just compensation is enshrined in the Fifth Amendment’s Takings Clause and is generally taken to mean fair market value. However, governmental definitions of just compensation might not always align with the perceptions of those whose property is seized. The government’s authority to take private property for public use is called eminent domain.
Key Takeaways
- Just compensation is paid to property owners for the legal seizure of personal property or land.
- It is legally defined under the Takings Clause in the Fifth Amendment.
- Property owners are paid fair market value for their property, although determining this value can be complex.
- Various methods are used to determine a property’s value, including market approaches, income approaches, and cost approaches.
Understanding Just Compensation
The concept behind just compensation is to restore the individual’s estate as if the property taking had not occurred. This typically involves paying the fair market value for the property.
However, those who lose their homes through eminent domain actions might not consider fair market value as sufficient compensation for their loss, given it often overlooks the emotional stress, the costs of relocating, community ties, and sentimental values associated with the property. Fair value becomes a contentious point in many eminent domain cases.
Factors of Just Compensation
When determining just compensation, several issues are assessed:
Fair Market Value of Land
The price the property owner would receive if they willingly—not under duress—sold the land can help determine its fair market value. For example, if a landowner auctioned off their property to purchase a larger one, the auction sale price would indicate fair market value.
Fair Market Value of Land Improvements
Land improvements entail structures that enhance the land’s value. These might include detached homes, barns, and separate garages. Intangible improvements may also be considered; for example, a property near natural resources might be deemed more valuable.
Residue Damage
When only part of the property is seized, residue damage reflects the harm done to the remaining property. This may include restricted usability of the best sections of land, altered land shape, or new proximities to public infrastructures like roads or utilities.
Benefits
In less common scenarios, property owners may benefit from their land being seized. For instance, if a portion of the land is seized for a new service road, making the remaining property sub-divisible, this advantage would be considered to offset the total compensation.
Methods for Property Valuation
There are three generally accepted methods to value a property in eminent domain cases:
1. Market Approach
The market approach involves comparing the seized property to recent sales of similar properties, often used to appraise residential real estate.
2. Income Approach
Best for properties that generate income, the income approach values a property by determining its operating income, using that income and the capitalization rate to arrive at a value.
3. Cost Approach
The cost approach is used for properties with specific structures that would need recreation on any new property. This method involves calculating the land value, estimating replacements costs for the structures, and accounting for any depreciation.
Related Terms: eminent domain, fair market value, Takings Clause, residue damage, property valuation.
References
- National Constitution Center. “The Fifth Amendment Takings Clause”.
