Many government agencies have the power of eminent domain. Eminent domain is the right of the government to acquire to acquire private property for public use by paying just compensation. Just compensation is normally defined as the market value of the property which is being acquired. Appraisers may be hired either by the condemning agency, that is the government agency, or the owner of the property which is to be acquired.
The Uniform Relocation Assistance and Real Property Acquisition Act of 1970 and the corresponding legislation adopted by all 50 states requires agencies to have an appraisal of the property made before the agency can make an offer to purchase private property.
Various states operate under either the federal rule for measures of just compensation or the state rule. Arizona operates under the state rule. Typically, the procedural steps in estimating just compensation are as follows:
1. Estimate the market value of the property to be acquired before the acquisition.
2. Subtract the value of the part to be acquired as part of the whole
3. Estimate the remainder value as part of the whole.
4. Subtract the estimated remainder value after the acquisition.
5. Add the damages to the remainder.
6. Subject special benefits, if any, to the remainder.
7. Estimate net damage to the remainder.
8. Add the value of the part taken.
9. Estimate total just compensation.
In valuing the part to be acquired, normally, the part to be acquired is valued as part of the larger parcel. However, court rulings sometimes conflict with this position. If the part to be acquired has an independent economic use and its market value as a separate entity is greater than its value as part of the whole, it has been held proper to value the part to be acquired as a separate tract and not as part of the whole.
Determination of what constitutes a larger parcel is, therefore, an important role of the appraiser. According to the Dictionary of Real Estate Appraisal.
“In condemnation, that tract or tracts of land which are under the beneficial control of a single individual or entity and have the same, or an integrated, highest and best use. Elements for consideration by the appraiser in making a determination in this regard are contiguity, or proximity, as it bears on the highest and best use of the property, unity of ownership, and unity of highest and best use.”