The compensation question is, at its essence, a problem of market value to be resolved through the analysis of appraisals. We cannot appraise the property but are well-situated to assist the property owner in determining whether to hire its own appraiser, who to hire, when to hire, and the best approach to maximizing compensation. The condemning authority’s offer of compensation is typically supported by an appraisal, and at some point the condemning authority will have to provide the property owner with a copy of it. Once the appraisal comes in, the first step in its evaluation is to confirm that all legally compensable elements of market value have been considered. Depending on whether the condemnation involves a whole or partial taking, vacant or improved land, fee ownership or a leasehold interest, or claims for remainder damages, the issues involved in this evaluation can range from straightforward to exceedingly complex. This is where our lawyers' extensive experience in analyzing compensation claims pays off.
The appraisal report in a condemnation case really contains two appraisals: an assessment of the market value of the whole property before the taking and of the property remaining after the taking. In most cases, the difference between these values will be the amount of compensation owed. Every case will involve an assessment of the whole property before the taking, and this assessment is critically important. In many cases, the market value of the whole property will be determinative of the compensation question; either because the taking is a whole taking or because the taking does not negatively impact the market value of the remainder property after the taking. Even in cases involving remainder damage issues, the reliability of the assessment of the remainder after the taking will depend on the accuracy of the assessment of the property before the taking.
The Relevant Parcel
The first issue to be considered in assessing the whole property is identifying the relevant parcel, sometimes referred to as the separate economic unit. In some instances, this will be the taking; in others, the relevant parcel will be all or part of the whole property. The bounds of the relevant parcel are in large part determined by the use of the property. The portions of the whole property that share the same highest and best use, up to and including the whole property, constitute the relevant parcel. This determination is critically important to determining the market value of the whole property and, thus, the market value of the property being taken. While in most cases the whole property will be the relevant parcel, when the relevant parcel is something less than the whole property, using the whole property as the relevant parcel unfairly averages the market value of the part taken with property that does not share its use potential.
Highest and Best Use
The next inquiry is whether the appraisal has adequately assessed the property’s use potential. The market value of property is not limited to its existing use. Instead, in determining market value, the appraiser must consider the property’s highest and best use, the reasonably probable and legal use of the property, which is physically possible, appropriately supported, financially feasible, and that results in the highest value. The appraiser’s conclusion of the relevant parcel’s highest and best use will control the appraiser’s selection of market data. Thus, an error at this point of the appraisal will taint all market value conclusions going forward in the appraisal.
The assessment of the remaining property after the taking is more complex. All of the issues presented by the appraisal estimate of the whole property’s market value still apply. Additionally, there are legal constraints on which impacts from a taking may be considered that can greatly alter an analysis of the remainder’s market value. As the Supreme Court of Texas has remarked on many occasions, not every decrease in market value is compensable. Thus, while an appraiser may be able to quantify a negative impact from a taking, only the condemnation attorney can advise the client whether the impact is compensable and, thus, whether it warrants the attendant expense associated with litigating the issue.