12.8 Valuation

• Library: The Virginia Lawyer: A Deskbook for Practitioners (Virginia CLE) (2018 Ed.)

12.8 VALUATION

12.801 Introduction.

A. Nature of the Inquiry.

[T]he question of compensation is judicial. It does not rest with the public, taking the property, through Congress or the legislature, its representative, to say what compensation shall be paid, or even what shall be the rule of compensation. The Constitution has declared that just compensation shall be paid, and the ascertainment of that is a judicial inquiry. ²²⁷

B. Making the Property Owner Whole. "The guiding principle of just compensation is reimbursement to the owner for the property interest taken. . . . He must be made whole but is not entitled to more." ²²⁸

"[Just] compensation means the full and perfect equivalent in money of the property taken." ²²⁹

C. Principles of Fairness and Equity. "The word 'just' in the Fifth Amendment evokes ideas of 'fairness' and 'equity.'" ²³⁰

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"The constitutional requirement of just compensation derives as much content from the basic equitable principles of fairness as it does from technical concepts of property law." ²³¹

12.802 Fair Market Value.

A. In General. The landowner is entitled to be compensated for the fair market value of the taking. Fair market value is the price the property would bring if it were offered for sale by one who wanted to sell but was under no necessity and was bought by one who wanted to buy but was under no necessity. ²³² Fair market value does not, therefore, include any personal or subjective value. ²³³ On the other hand, a landowner is not limited to present or past uses of the property in establishing fair market value. The test is what the property is worth in the market, and any reasonable prospective use may be considered. ²³⁴

B. Virginia's Model Jury Instruction on Fair Market Value. In determining fair market value, the jury may not consider that the property owner might have been unwilling to sell at fair market value or that the Commonwealth has a need for the property, nor may it consider the use that the Commonwealth will make of the property.

12.803 Alternate Valuations. Fair market cannot be the standard of valuation when it produces less than the constitutional guarantee or when market value cannot be ascertained. Fair market value is generally not used to value special purpose properties or public service facilities because properties of this type are not typically bought and sold on the open market. ²³⁵

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[W]hen market value has been too difficult to find, or when its application would result in manifest injustice to owner or public, courts have fashioned and applied other standards. . . . [T]he dominant consideration always remains the same: What compensation is 'just' both to an owner whose property is taken and to the public that must pay the bill? ²³⁶

12.804 Valuation Formula. Just compensation is generally computed as the value of the property taken plus the difference in the value of the residue before and after the take. There are three approaches to determining value: (i) the market sales approach; (ii) the income approach; and (iii) the cost approach.

12.805 Highest and Best Use. The property must be valued in its current condition according to the property's highest and best use. "Market value fairly determined is the normal measure of the recovery. [T]hat value may reflect the use to which the land could readily be converted, as well as the existing use." ²³⁷ Unless the property is already being used according to its highest and best use, the property should not be valued as is but instead with reference to the highest and best use to which the property is adaptable and suitable.

The inquiry in such cases must be what is the property worth in the market, viewed not merely with reference to the uses to which it is at the time applied, but with reference to the uses to which it is plainly adapted; that is to say, what is it worth from its availability for valuable uses. Property is not to be deemed worthless because the owner allows it to go to waste, or to be regarded as valueless because he is unable to put it to any use. Others may be able to use it, and make it subserve the necessities or conveniences of life. Its capability of being made thus available gives it a market value which can be readily estimated. ²³⁸

"The four criteria the highest and best use must meet are legal permissibility, physical possibility, financial feasibility, and maximum profitability." ²³⁹

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A use must be reasonably probable, but it does not have to be shown to be an absolute certainty.

A project may change the intensity of a highest and best use while not changing the actual use, for example, high intensity retail to low intensity retail or high density residential development to low density residential development. "[C]onsideration should be given to any material change in the intensity of use within a highest and best use." ²⁴⁰

"Various parts of a single property may have different highest and best uses, as long as these uses are not inconsistent (e.g., residential or commercial along road or highway frontage and agricultural use for the rear land)." ²⁴¹ For example, the highest and best use of a large parcel abutting a public road or highway on one side and a quiet river on the other may be commercial use along the road frontage and residential or recreational use along the river. Although the same property cannot be valued according to two inconsistent highest and best uses, different parts of the same property may be valued according to different highest and best uses. ²⁴²

To be safe, the appraiser should be careful to value the property as a whole even if different portions of the same property have different highest and best uses and thus different values. The appraiser should not simply add up the value of different portions of the same property to arrive at a value. Instead, the appraiser should consider the value of the different portions and use this knowledge to determine the overall value of the whole.

12.806 Use and Marketability. The following are two important questions to ask when considering valuation of a property regarding its use and marketability:

A. How does the taking and construction of the project affect the use or the marketability of the property?

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B. Does the change in utility or marketability alter, change, or affect the highest and best use of the property after the take?

12.807 Enhancement Benefits. Enhancement is an increase in the value of property caused by the taking and construction of the public project. Under Virginia law, enhancement benefits may offset damages but not the value of the property taken. Pursuant to section 25.1-230(A)(2), only "peculiar benefits" offset damages. The rule applicable to VDOT and all other quick-takes provides that "general enhancement" offsets damages. ²⁴³

12.808 Project Influence on Appreciation and Depreciation. Neither the owner nor the condemnor can seek the benefit of project influence. The owner cannot reap a windfall from appreciation caused by the project, and the condemnor cannot reap a windfall from depreciation caused by the project. Section 25.1-417(A)(3) of the Virginia Code requires state agencies to ignore project influence on property value before the date of take. It reads as follows:

Any decrease or increase in the fair market value of real property prior to the date of valuation caused by the public improvement for which such property is acquired, or by the likelihood that the property would be acquired for such improvement, other than that due to physical deterioration within the reasonable control of the owner, shall be disregarded in determining the compensation for the property.

Any appreciation in value before the time the condemnor is committed to the project is not enhancement that can be offset against compensation. ²⁴⁴

12.809 Unity of Parcels. One of the first things the attorney and appraiser should do is to decide which parcels should be considered and valued for purposes of determining compensation. If the condemnor takes one parcel and that parcel is used in connection with other parcels, the other, separate parcels may need to be valued with the parcel taken. In other words, two or more separate parcels may need to be valued together as one larger parcel. The valuation of the parent tract or larger parcel may greatly affect damages. For example, a restaurant owner may have one parcel on which the restaurant building is located and a separate parcel on which the parking for

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the restaurant is located. If the condemnor takes the parcel used for parking, the value of the parcel used for the restaurant may be greatly diminished. If these parcels are valued together, significant damages may exist.

For the owner to assert the "unity of lands" doctrine, the separate tracts of land must have unity of use, physical unity, and exact unity of ownership. ²⁴⁵

12.810 Probability of Rezoning. When valuing the property to determine just compensation, the probability of rezoning is a proper consideration. "If a more profitable use can be made of the property under another zoning regulation, consideration must be given to the probability of securing the zoning change and the risk involved to the buyer to obtain a higher usage." ²⁴⁶

12.811 Raw, Unimproved, or Undeveloped Land.

Since it was shown that the highest and best use of the landowners' property was for expansion of their trailer park, it would have been proper for them to prepare and introduce an accurate map of their property showing its potential and suitability as a subdivision for trailer sites and showing that the undeveloped portion thereof could be integrated into that portion which had been previously subdivided. Such an accurate map would have been admissible for the sole purpose of showing that the present value of the acreage involved was affected by its adaptability to and its availability for that highest and best use. We agree...