Eminent domain is not your typical litigation. The former owner did not ask for its property to be taken for a public purpose. This is the reason that several decisions have pointed out that what may be normal in litigation between private parties does not apply in a condemnation proceeding which involves a claim protected by our constitutions. As Justice Thomas A. Dickerson stated, in Matter of Irvington v Sokolik, 13 Misc3d 1220 [Sup. Ct. West 2006], “a condemnation proceeding is not a private litigation. There is a constitutional mandate upon the court to give just and fair compensation for property taken. This means just to the claimant and just to the people who are required to pay for it.” Yaphank Development Co., Inc. v County of Suffolk, 203 AD2d 280, 609 NYS2d 346 [2d Dept 1994].
In a condemnation case, real estate is valued as if it is free and clear of all leases, mortgages or encumbrances. It is a fair market valuation. Matter of City of New York (Bronx River Expressway), 278 App. Div. 813 [1st Dept 1951].
If not a condemnation case, one would value subject to leases and encumbrances.
Appraisers estimate property value by utilizing three approaches to analyze real estate data. The three classic methods of valuing real property are: the market data or comparable sales approach, the income capitalization approach, and the cost approach.
The market data approach, also known as the comparable sales approach, is used when the subject property is similar to other properties that have been sold. This method works well for residential properties and is always used for vacant land. The appraiser will analyze the sales by making a grid to show the appraiser’s adjustment for location, size, time, zoning, marketing factors, view, and other factors that a buyer would consider, all with the idea that the comparable sales, as adjusted, will indicate a value of the subject.
It is a rare appraisal that does not include the sales comparison approach to value a property. The appraiser will research the market for information on properties that are similar to the subject property and have recently sold. The objective is to find sales that have similar characteristics such as topography, condition, size, location, zoning, date of transaction, etc. Appraisers then must “adjust” the comparable sales for the various factors, usually in a grid comparing the comparables to the subject property. All of the comparables as adjusted are then studied by the appraiser, often with several adjusted sales being given more weight than others to indicate a value of the subject.
The determination of the suitability of comparable sales is a matter resting within the Court’s sound discretion. Matter of M.T.A. (Collegiate Church), 86 AD3d 314 [1st Dept 2011].
But what does an appraiser do if there are no true comparables? What if the property is far superior to anything that can be used for comparison?
In eminent domain, the rule is that any increment of value may be taken into consideration. In U.S. v Fuller, 409 US 488 [1973], the United States Supreme Court held that the just compensation that the Fifth Amendment requires to be made when the government exercises its power of eminent domain is generally fair market value. But that term is not an absolute standard nor an exclusive method of valuation. It further stated that the constitutional requirement of just compensation derives as much content from the basic equitable principles of fairness as it does from the technical concepts of property law. (At p. 490).
New York Courts have repeated the doctrine, holding that there is no inflexible formula or set of inexorable rules by which just compensation is to be realized in dollars and cents. Matter of Rochester Urban Renewal, 45 NY2d 1, 8 [1978].
Thus, there must be full compensation, not just market value, for market value may not reflect the true value of the property taken.
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