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Calculation of fair market value in eminent domain

On Behalf of | May 2, 2023 | Eminent Domain

Governments and public-serving entities in California have the capacity to force the sale of real estate so that it can be used for a public use. This is known as an eminent domain action. The Fifth Amendment to the U.S. Constitution authorizes government agencies to do this so long as property owners receive just compensation. For you to receive just compensation, you need to calculate the fair market value (FMV) for the property.

Market trends for similar properties

Supply and demand continually affect real estate prices, which is why the FMV depends so heavily on measuring the current market. The prices that people are paying for comparable properties represents what a home costs when a willing and well-informed buyer and seller complete a sale.

For residential properties, real estate professionals calculate FMV by examining recent sales of homes with similar characteristics to yours. These comparable properties are similar in size, age, style, and location. The analysis of recently sold homes should reveal how much your home should demand on the open market.

Difficulties with FMV and eminent domain

The FMV should not represent a price that results from a forced sale. Sometimes people sell for lower amounts because they need to move immediately or are under significant financial pressure. Although eminent domain is forcing the sale, you still have a legal right to what the property should earn according to current real estate prices.

Problems arise when you and the other party cannot agree on FMV. Calculating it based on comparable properties may not necessarily reflect the special aspects of your property. Professional appraisals mostly come down to individual opinions about the market. To resolve an eminent domain case, you may need to conduct multiple appraisals and choose an average of the different values presented.