Eminent Domain | Sales Comparison Approach

Eminent Domain - Sales Comparison Approach Most Common Method of Determining Fair Market Value

As I've mentioned before, there are three traditional methods of determining the fair market value of property in eminent domain: sales comparison approach; income approach; and the cost approach. Although in many situations all three valuation methods can provide some insight into the fair market value of the property, the sales comparison approach is universally recognized as the most accurate indicator of value (when sales in the market exist).

In addition to the sales comparison approach being the most accurate indicator of fair market value, it is also the easiest to gather information on and the easiest to gather significant information on. It provides concrete, tangible information and is based the least on the subjective determinations of the appraiser. But, it is also the easiest to manipulate if you are a good eminent domain lawyer.

Sales Comparison Approach Explained

The sales comparison approach is a very easy concept to grasp. Wherever your property is, there are bound to be other properties like it. Properties that have about the same lot size, about the same square footage, about the same number of bedrooms and bathrooms, about the same condition as your house, and about the same amenities. And chances are that some of the houses are being put into the real estate market and are being bought and sold for agreed to prices in arms-length transactions.

The theory behind the sales comparison approach is these arm-length transactions provide evidence of what the market will bear for that specific type of property. And it makes sense if you think about it. When a house is put up for sale, a homeowner traditionally sets the price at at least the amount they would sell the house for. What I mean is no one usually lists their house for less than an amount they would take if someone accepted their offer. On the other side, no buyer is going to make an offer on a property for more than they think the house is worth. It would be a waste of money.

Therefore, when the two parties come to an agreement on the price to buy and sell a house for, it can be assumed that the buyer is paying a price they believe the house if worth and the seller is accepting a price they think the house is worth. Or said another way, they have agreed on the fair market value of the price of the house.

Now, one sale may be enough to provide a basis for the fair market value of your eminent domain taking. But four sales provides a great basis. And ten assures you have the information necessary to make a complete determination of fair market value. More is better because there are going to be things about each of the comparable sales that are both alike and different from the eminent domain taking. The more sales you have, the more you can extrapolate the differences, focus on the similarities, and arrive at a true fair market value for the property.

How Can an Eminent Domain Lawyer Help Get you More Money?

What an eminent domain attorney has the ability to do is see the hidden potential in your property so that you are using the right comparables in your analysis. For example, let's say you are a farmer, and you own some ground that is near the city limits of a fairly large sized metropolitan area and the city is growing your way. Even though you as a farmer would never want to develop your ground commercially, there is probably an argument that your properties highest and best use is for commercial or residential development. This means that instead of looking for agricultural and rural residential comparable sales, you would want to look for commercial and residential development site sales - a huge increase in value. So long as the highest and best use is not speculative, conjectural, or remote, it is allowed to be argued for fair market value purposes in eminent domain proceedings.

What is your land is clearly residential or agricultural? How can an eminent domain attorney help you get the most money for the taking? The benefit of an eminent domain attorney in this case is they have the ability to spot the flaws in the comparables the other side is using to promote their theory of fair market value and locate those comparables that most accurately represent your property's value. This can result in a significantly higher amount of money at the eminent domain proceeding.

When going forward through this arduous journey that is the eminent domain process, remember that there are ways to increase your just compensation award. The best way to do this is to become familiar with the process and use all of the tools at your disposal. This means hiring an eminent domain attorney.