Chapter § 62.4 DETERMINATION OF JUST COMPENSATION

• Jurisdiction: Oregon

§ 62.4 DETERMINATION OF JUST COMPENSATION

§ 62.4-1 Methods of Valuation

Just compensation is ordinarily determined by one or more of the three real estate evaluation formulas that are universally employed by the real estate appraisal profession. These formulas are commonly known as the market approach (see § 62.4-1(a)), the income approach (see § 62.4-1(b)), and the cost approach (see § 62.4-1(c)). See American Institute of Real Estate Appraisers, The Appraisal of Real Estate, 14th Edition (2013); Edwin M. Rams, Valuation for Eminent Domain (1973); American Institute of Real Estate Appraisers, Condemnation Appraisal Practice (1961); George L. Schmutz, Condemnation Appraisal Handbook (1963) (citations not verified by publisher).

Under appropriate circumstances all three approaches have been accepted and approved by the courts. See State of Cal. ex rel. State Pub. Wks. Bd. v. Stevenson, 84 Cal Rptr 742, 744 (Ct App 1970); State Through Dep't of Highways v. Crow, 286 So 2d 353, 356 (La 1973).

§ 62.4-1(a) Market Approach

The fair market value of property may be established by comparing the property with sales of similar property. The reference properties must be sufficiently similar in use, location, and features to the condemned property to make the comparison reasonable. Major items of comparison include the date of the sale, location, proximity of the properties, highest and best use, size, nature and condition of improvements, availability of utilities and sanitary facilities, zoning, topography, access, terms of the sale, and knowledge and intent of the parties. State By & Through State Highway Comm'n v. Parker, 225 Or 143, 159-60, 357 P2d 548 (1960) (evidence of prices paid for similar properties recently sold is admissible to aid in determining the fair market value of the condemned property); State Highway Comm'n v. Callahan, 242 Or 551, 553, 410 P2d 818 (1966).

Prior sales of the subject property are admissible as evidence of market value, as long as the transactions are not remote and there have not been material changes in the condition of the property or circumstances that would affect value. Douglas Cnty. v. Meyers, 201 Or 59, 65, 268 P2d 625 (1954) (purchase price paid five years before taking was admissible); Moore Mill & Lumber Co. v. Foster, 216 Or 204, 253-55, 336 P2d 39 (1959) (purchase price paid to family-owned corporation seven years before taking held admissible); State By & Through State Highway Comm'n v. Oregon-Washington Lumber Co., 24 Or App 187, 192-93, 544 P2d 1058 (1976); City of Portland v. Nudelman, 45 Or App 425, 436-37, 608 P2d 1190 (1980) (evidence of price paid for a quarter interest eight years earlier was properly excluded). It is within the trial court's discretion to either admit or exclude testimony regarding the purchase price of the property paid by the owner. State Highway Comm'n v. Jones, 237 Or 372, 374-75, 391 P2d 625 (1964).

Sales made to condemning authorities are not evidence of market value, whether the payment resulted from a negotiated settlement or a jury verdict, because such sales are involuntary. City of Portland By & Through Portland Dev. Comm'n v. Holmes, 232 Or 505, 510-11, 376 P2d 120 (1962).

Offers to purchase or sell property do not qualify as fair and open market sales and may not be admitted in evidence as comparable sales under the market approach to value. State Highway Comm'n v. Cent. Paving Co., 240 Or 71, 77, 399 P2d 1019 (1965); State By & Through State Highway Comm'n v. Morehouse Holding Co., 225 Or 62, 65-66, 357 P2d 266 (1960); State v. Cerruti, 188 Or 103, 115, 214 P2d 346 (1950).

§ 62.4-1(b) Income Approach

The income or rent from property (as distinguished from business profits) is an accepted indicator of the market value of the property. State By & Through State Highway Comm'n v. Nunes, 233 Or 547, 557, 379 P2d 579 (1963); State v. Cerruti, 188 Or 103, 108-09, 214 P2d 346 (1950); City of Medford v. Bessonette, 255 Or 53, 60, 463 P2d 865 (1970) (The court held it was proper to show how loss of the parcel (where parking and a swimming pool were an integral part of the use of the apartments) would affect the rental income from the part of the property not taken. As distinguished from capitalization of profits, the appraiser based his conclusions on capitalization of rental income, which was appropriate.). By the income approach, the net income or rental from the property is capitalized to reflect the value. The net income is determined by subtracting expenses from the actual or estimated fair rental value of the property. In Nunes, 233 Or at 558, the Oregon Supreme Court held that capitalization of income when properly used is an acceptable method of arriving at the value of property. The court noted that this was not just estimating the value of the land by multiplying the quantity of materials by the existing market price per unit, but involves a refined computation by an expert appraiser "by deducting costs of operation, making allowance for variances in the market price of the materials" in relationship to the amount of materials taken, and by accounting for other factors that an expert would consider in applying the capitalization method. Nunes, 233 Or at 558. The capitalization rate represents the local prevailing rate of earnings for similar properties. Profit derived from a business conducted on property is not considered an appropriate criterion of market value. Cerruti, 188 Or at 108.

§ 62.4-1(c) Cost Approach

To estimate the value of land using the cost approach, the value of the land without improvements is first determined by the market or comparable sales approach discussed in § 62.4-1(a). To this value is added the replacement cost of the condemned improvements, minus depreciation and an allowance for obsolescence or deterioration. This approach is often used in valuing special-use properties such as schools, churches, golf courses, and other properties for which there are few, if any, comparable sales and for which the market approach to valuation is unreliable. See State Highway Comm'n v. Demarest, 263 Or 590, 606-08, 503 P2d 682 (1972) (compensation for trade fixtures of restaurant); In re Polo Grounds Area Project, Borough of Manhattan, City of New York, 20 NY2d 618, 233 NE2d 113, 116-17 (1967) (condemnation of sports stadium); State v. Wilson, 6 Wash App 443, 449-50, 493 P2d 1252, 1257 (1972) (condemnation of medical office and apartments); Reorganized Sch. Dist. No. 2 v. Missouri Pac. R.R. Co., 503 SW2d 153, 157-58 (Mo Ct App 1973) (condemnation of portion of high school campus).

In Oregon, however, the cost approach has been held inapplicable when the market or income methods of demonstrating value are available. State v. First Methodist Church of Ashland, 6 Or App 492, 494-96, 488 P2d 835 (1971); State By & Through State Highway Comm'n v. Superbilt Mfg. Co., 204 Or 393, 426, 281 P2d 707 (1955); State, By & Through Dep't of Transp. v. S. Pac. Transp. Co., 89 Or App 344, 347, 749 P2d 1233, rev den, 305 Or 671 (1988).

§ 62.4-2 Special-Use Properties

Special-use properties are not commonly bought and sold in an open market. Schools, churches, golf courses, parks, stadiums, governmental installations, public utilities, and transportation facilities are examples of properties for which there are few, if any, comparable sales. Thus, the market approach for these properties is unreliable. The courts have approved both the cost approach and the income approach in valuing special-use property. See In re Polo Grounds Area Project, Borough of Manhattan, City of New York, 20 NY2d 618, 233 NE2d 113, 116-17 (1967).

§ 62.4-3 Valuation of Separate Interests

When there are several interests or estates in one parcel of land, just compensation is ascertained as though the property belonged to one person, and that sum is apportioned among the various parties according to their respective interests. State, By & Through State Highway Comm'n v. Burk, 200 Or 211, 243, 265 P2d 783 (1954). In Burk, the court held:

The value of property can not be enhanced by any distribution of the title or estate among different persons, or by any contract arrangements among the owners of different interests. Whatever advantage is secured to one interest must be taken from another, and the sum of all the parts cannot exceed the whole.

Burk, 200 Or at 243 (quoting John Lewis, 2 A Treatise on the Law of Eminent Domain in the United States § 716, at 1253 (3d ed 1909)).

Although improvements to realty, including fixtures, normally are valued as part of the entire property in lump sum, the court of appeals affirmed the judgment in City of Portland v. Nudelman, 45 Or App 425, 430-31, 608 P2d 1190 (1980), in which evidence of the value of the tenants' fixtures was admitted separately from the total just compensation and set forth separately in the verdict.

§ 62.4-4 Date of Valuation

The date of valuation is the date the condemnation action is commenced or the date the government enters on and appropriates the property, whichever occurs first. State By & Through State Highway Comm'n v. Stumbo, 222 Or 62, 77, 352 P2d 478 (1960) (court reasoned that a better case is made for assessing just compensation on the date of entry, rather than on the date that the condemnation action is filed); State, By & Through Dep't of Transp. v. Glenn, 288 Or 17, 23, 602 P2d 253 (1979); State ex rel. Olcott v. Hawk, 105 Or 319, 328, 208 P 709 (1922); State By & Through State Highway Comm'n v. Assembly of God, Pentecostal, of Albany, 230 Or 167, 177, 368 P2d 937 (1962). However, in cases when the government does not take possession of the property before judgment is entered, Oregon courts have yet to clearly hold at which date property is "taken" for determining just compensation—the date of filing the complaint, the date of possession, or the date of taking title (judgment).

Oregon recognizes the rule that any increase or enhanced value caused by planning, announcing, or constructing...