A Changing Landscape: How New State Legislation May Affect Eminent Domain Valuation

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In a recent article for Valuation magazine, "A Changing Landscape: How new state legislation may affect eminent domain valuation," we examine how new and changed legislation...
United States Litigation, Mediation & Arbitration
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Eminent domain proceedings are governed by special constitutional and statutory rules that involve specific pre-filing requirements (appraisals, offers, negotiations) and multiple additional obligations, including those for valuation. Appraisers are involved in condemnation proceedings from the very beginning — from the pre-condemnation appraisal supporting an initial offer and deposit through trial appraisals and court testimony — and just as the attorneys work within a specific set of rules during an eminent domain action, so do appraisers.

New and changed legislation can affect the role appraisers play in eminent domain actions as well as how condemnation valuations are governed. These laws are often enacted with little fanfare, but their effect on eminent domain valuations may be substantial. Attorneys and appraisers need to understand whether specific legislation has modified what is compensable or whether it has changed definitions, valuation methods or imposed additional requirements. Otherwise, a valuation opinion may lose credibility or be excluded altogether.

Below are some of the key state legislative changes from 2022 that affect appraisers and how valuations are conducted regarding eminent domain actions.

  • Texas enacted HB 2730, which revises the state's rules pertaining to the initial condemnation offer, including information about damages and the appraisal. The initial offer must state, in bold print and a larger font, whether the offered compensation includes damages to the remainder of the property or includes an appraisal that identifies any damages to the remainder of the property. Appraisers need to know how the new initial offer requirement is being implemented and whether they must add anything to their pre-condemnation appraisals.

  • Utah passed HB 357, a bill that modifies requirements for the final offer before an eminent domain trial and requires an updated appraisal before the offer is made. Specifically, if more than 90 days have passed since the prior appraisal, the condemning entity must obtain an additional appraisal of a property before making a settlement offer. Further, unless waived by the defendant, the new appraisal must use a valuation date no more than 120 days before the trial date. Appraisers should check with counsel to see if there are any additional requirements before they go to trial.

    Just as appraisers need to keep an eye out for additional requirements in any eminent domain process in which they have a role, they also should be aware of legislation that specifically affects what may be compensable and whether certain types of acquisitions need to be valued a specific way.

  • Colorado enacted SB 208, legislation that affects how property with conservation easements is valued. If property encumbered by a conservation easement in gross is condemned, just compensation must be determined based on the value of the property as if unencumbered by the conservation easement in gross, and must be allocated between the fee owner and the holder of the conservation easement based on the value of their respective interests in the property. Because there are many different types of property interests, appraisers need to look for specific rules governing each type.

  • Missouri passed HB 2005, which makes eminent domain by certain electrical companies more favorable to farmers, ranchers and other landowners by requiring compensation for agricultural and horticultural land to be 150% of the fair market value if certain requirements are met. Some jurisdictions have their own rules when it comes to valuing different types of property, so appraisers should investigate whether specific rules apply.

  • Virginia approved SB 666, a bill that changes the definitions of lost profits and lost access in eminent domain, and limits liability for shortterm interruptions to business or lost accdue to temporary takings that last for less than a week. This change could influence what is deemed compensable in eminent domain, so appraisers should familiarize themselves with the revised definitions.

Emerging case law can also change the rules for eminent domain cases and serve as reminders of best practices so that appraisers can maintain credibility and avoid having their opinions excluded. For example, in CORE Elec. Coop. v. Freund Invs., which was argued in 2022 before the Colorado Court of Appeals, an easement was being acquired across land primarily used for agriculture. The property owner argued the highest and best use of the land was to divide it into residential lots for future sales. The owner's appraiser used two methodologies — the sales comparison approach and the subdivision development method (also known as the developer's approach). For the sales comparison approach, the appraiser did not verify the amount of consideration from the buyer or seller for each of his comparables, which created a hearsay problem. Other hearsay exceptions made the comparables admissible, but this case serves as a reminder to verify the comparable sales. For the subdivision development method, the court held this method to be inadmissible because prior law prohibited this methodology when the land at issue had not already been subdivided. Essentially, there was no evidence the property owner was working toward subdivision, so the valuation of hypothetical lots was highly speculative.

Another important thing to remember is that changes in eminent domain law are made not only by legislators but also, commonly, directly by the courts.

Final thoughts

Newly enacted legislation or changes to existing laws can alter the rules governing eminent domain valuation, so appraisers who specialize in this type of work need to be cognizant of any changes to ensure that their opinions of value are both credible and admissible in a court of law.

Originally Published by Appraisal Institute: Valuation magazine.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

A Changing Landscape: How New State Legislation May Affect Eminent Domain Valuation

United States Litigation, Mediation & Arbitration

Contributor

For more than 80 years, Nossaman LLP has delivered the highest quality legal expertise and policy advice to our clients nationwide. We focus on distinct areas of law and policy, as well as in specific industries, ranging from transportation, healthcare and energy to real estate development, water and government.
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