§13.7 - Appraisal Methodologies

• Jurisdiction: Washington

§13.7Appraisal Methodologies

Understanding damages in condemnation cases requires that you first understand how properties are valued in eminent domain cases and how damages are measured. The most important concepts of property valuation are "fair market value" and "highest and best use." A clear understanding of what distinguishes "general" and "special" benefits is also important.

In virtually every case, you will be working with a professional real estate appraiser to develop the property valuation, which will in turn be used to determine the amount of just compensation due the property owner. An experienced appraiser can provide information useful to valuing the property, including the selling price of comparable residential or commercial real estate, market trends, reasonably probable uses for the property, etc. However, not all professional appraisers have eminent domain experience; be sure your appraiser understands the legal definition of just compensation and the elements of damage to the remaining property that are legally compensable.

(1) Fair market value

Just compensation is determined by the "fair market value" of the property. "Fair market value" is the amount in cash that a well-informed buyer, willing but not obliged to buy the property, would pay, and which a well-informed seller, willing but not obliged to sell it, would accept, taking into consideration all uses to which the property is adapted or may be reasonably adaptable. See WPI 150.08.

(2) Highest and best use

To determine fair market value, you also must understand the meaning of "highest and best use." This is an area where many beginning practitioners and laymen go awry. Highest and best use is defined as "the reasonably probable and legal use of vacant land or an improved property that is legally permissible, physically possible, appropriately supported, financially feasible, and that results in the highest value." Appraisal Institute, THE APPRAISAL OF REAL ESTATE , Ch. 12 at 278 (13th ed. 2008) (emphasis added). Each of these elements must be considered, as this is how the real estate market views property. Buyers do not presume that a four-story commercial building can be built in a residential area, and neither can a property owner in an eminent domain case. Buyers and sellers, who represent the market, consider each and every one of these factors when making buying and selling decisions, as these factors create value. If any one of these elements is missing, value is diminished.

Practice Tip: Approach property valuation as a well-informed, prospective buyer. This may require you to retain the services of appraisers and other experts, such as engineers and architects. View the property yourself and carefully consider all reasonably probable uses of the property. If the valuation theory doesn't make sense to you, it likely won't make sense to a jury.

(3) General and special benefits

A general benefit enhances the value of the property sought under eminent domain as well as other property in the area, and should not be deducted from the just compensation.

A special benefit specifically adds to the fair market value of the remaining property as a result of the condemnation. See State v. Templeman, 39 Wn. App. 218, 693 P.2d 125 (1984). Special benefits also are those benefits of added value or convenience accruing to a condemnee that are different from any accruing to the general public. See State v. Green, 90 Wn.2d 52, 578 P.2d 855 (1978). See Paul Sinnitt, Offsetting Special Benefits and the Larger Parcel Test in Eminent Domain, 1 GONZ. L. REV. 77 (1966). The determination of special benefits is a question of fact that can only be determined on a case-by-case basis.

Caveat: Be careful you do not confuse general and special benefits There is no hard and fast rule for determining whether a benefit is general or special; each case must be determined within the context of its own facts.

Example: See State v. Ballwin Plaza Corp., 382 S.W.2d 633 (Mo. 1964), a case in which the appellate court held that the trial court erred in submitting for jury consideration as a special benefit the increased adaptability of the land for use as a shopping center, because the improvement did not change the highest and best use of the property, which already was a shopping center. See also Enterprise Co. v. Sanitary Dist., 176 Neb. 271, 125 N.W.2d 712 (1964), in which a condemning agency did not receive a special benefit by reason of a drainage ditch enlargement because the ditch was available to carry away drainage from the land prior to the condemnation; no additional value was realized.

(4) Authority to offset benefits

A condemning agency may wish to argue that improvements or special benefits to the remaining property should reduce the amount of monetary compensation paid to the condemnee.

The authority to offset special benefits varies among political subdivisions. RCW 8.04.080 provides in part that damages are to be determined and paid after offsetting "the special benefits, if any, accruing to such remainder by reason of the appropriation. " RCW 8.08.010 and .040 apply to counties, and RCW 8.12.030 has a similar provision with respect to cities, towns, and unclassified cities and towns. The right to offset special benefits is not specifically set forth for school districts and other political subdivisions; however, the right to condemn refers to Chapter 8.25 RCW, so inferentially a school district would also have such rights.

Ordinarily private corporations and quasi-public corporations are prohibited from offsetting special benefits. However, the court did find a limited exception in Spokane Traction Co. v. Granath, 42 Wash. 506, 85 P. 261 (1906). In that case, the Washington Supreme Court held that the building and opening of a bridge for highway purposes was a special benefit to property abutting on the approach.

As to whether benefits can be offset against the property being acquired in addition to damages to the remaining land, see Lewis v. City of Seattle, 5 Wash. 741, 32 P. 794 (1893), in which the court seems to indicate that there is no basis for distinguishing between offsetting benefits against damages or offsetting benefits against the value of the land appropriated. See State v. Fox, 53 Wn.2d 216, 332 P.2d 943 (1958); State v. Ward, 41 Wn.2d 794, 252 P.2d 279 (1953).

(5) Special benefit determination

Prior to trial, the attorney and client must decide whether to use the procedure set forth in RCW 8.25.210-.260 for the determination of special benefits. Although special benefits may accrue to an owner's remaining property by the construction of the improvement, the condemning agency is usually hard pressed to convince the jury it should be allowed to reduce the monetary...