February 20, 2017
By: J. Eric Rochford, Attorney
If you’ve ever bought or sold a home or any type of real estate, you have almost certainly seen (and hopefully) read a real estate appraisal. Typically, appraisals are in the standard 6-page Uniform Residential Appraisal Report format. However, appraisals for eminent domain/condemnation purposes Right-of-Way (“ROW appraisals”) are much different.
Right-of-Way v. Uniform Residential Appraisal Reports
ROW appraisals employ a “before” and “after” methodology. What this means is that the appraiser determines the value of your property before the taking and then determines the value of the property after the taking. The before value is the value of your property before and without considering the taking or project. The after value of your property uses hypothetical conditions and/or extraordinary assumptions. This means that the appraiser assumes that the project for which your property is being taken is completely constructed. The difference between the before and after values is the amount of total just compensation that the government will offer you for your property. Once the appraiser determines total compensation, he/she breaks down that amount between the following items:
- Value of the land taken
- Value of the improvements taken
- Residue damages
- Other damages
- The amount of benefits, if applicable.
An average ROW appraisal is a lot bigger than a Uniform Residential Appraisal Report and ranges anywhere from 20 pages up to 80 pages. If you aren’t used to reading appraisal reports, ROW appraisals can appear very complex. One thing to note is that a large amount of the information in the ROW appraisal actually relates to county or neighborhood characteristics and demographics instead of just specific information about the subject property, unlike a uniform residential appraisal report. This is one of the main reasons that ROW appraisals are so lengthy. You can easily find the relevant information in a ROW appraisal on the front page in a summary. This summary typically lists the before value, after value and a breakdown of the amount of each element of damages that make up just compensation.
What to look for in a ROW appraisal report
In a very simple sense, the most important information to look at is the per-acre value of the land, the value of the improvements, and how damages were calculated. Most right-of-way appraisals address each of these items in different subsections. Similar to a uniform residential appraisal report, ROW appraisals generally rely upon comparable sales to determine the value of the land taken. A property owner can get a good sense of whether the appraiser is comparing their property to similar properties by looking at the comparable sales information on the comparable sales sheet. Next, it is important to review the value assigned to property improvements. These are typically items like outbuildings, fences, swimming pools, and other structures. The valuation methods used for property improvements are a little more complex; however, appraisers still use comparable sales to determine the value of the improvements. One challenge in assigning improvement value is that appraisers hired by condemning agencies may just assign an “observed value” to an improvement rather than truly calculating the value of and the improvement and potential damage it may be suffer.
How residue damages affect your land value
Finally, one of the more difficult analyses is the determination of residue damages, which basically refers to a reduced land or property improvement value. Residue damages caused by a reduced land value refers to the difference between the per-acre “before” value of the non-taken real estate and the per-acre “after” value of the remaining real estate.
Example – The appraiser assigns a $10,000 per acre value to your property before the taking. Then the appraiser assigns a $7,000 per acre value after the taking for your remaining property (say 5 acres). Using these values, you would be entitled to $15,000 in residue damages ($3,000 x 5 acres).
Residue damages caused by a reduced value of your improvement(s), which is just the improvement and not the land, refer to the difference between the value of an improvement before the taking and the improvement value after the taking.
Example – your residence was worth $100,000 before the taking and is valued at $75,000 after the taking, so you are entitled to $25,000 for the reduced value of your residence.
The analysis and calculation of residue damages is where property owners and condemning agencies most often disagree.
It is important to note that appraisals by nature are subjective. This means that there is usually some type of bias present in any appraisal report. However, in order to ensure a property owner’s rights are protected in an eminent domain land takings, it is important for a landowner to hire experienced eminent domain counsel who can help them navigate the complex nature of property valuation and get the most money for their property.