Property Appraisal and Just Compensation

PROPERTY APPRAISAL

An agency normally determines what specific property needs to be acquired for a public project or program only after the project has been planned and government requirements have been met. The Agency will also review public records and other information about property in the area.

The property owner will be notified as soon as possible of:

(1) The agency's interest in acquiring your property;
(2) The agency’s obligation to secure any necessary appraisals; and
(3) Any other useful information.

When a government agency begins to acquire private property for public use, the first personal contact with the property owner should be no later than during the appraisal of the property.

An appraiser will contact the property owner to make an appointment to inspect the property. The appraiser is responsible for determining the initial fair market value of the property. The agency will use the appraiser's report to establish the just compensation to be offered for the property.

The property owner, or the owner’s representative, will be invited to accompany the appraiser when the property is inspected. This provides the owner an opportunity to point out any unusual or hidden features of the property that the appraiser could overlook. At this time, the owner should also advise the appraiser if any of the following conditions exist:

(1)There are other owners;
(2)There are tenants on the property; or
(3)There are items of real or personal property that belong to someone else.

It would also be helpful to tell the appraiser about other properties in the area that have recently sold.

The appraiser will inspect the property and note its physical characteristics. He or she will review sales of other similar properties in order to compare the facts of those sales with the facts about of the subject property. The appraiser will analyze all elements that affect value.

By law, the appraiser must disregard the influence of the future public project on the value of the property. However, the appraiser must consider normal depreciation and physical deterioration that has taken place.

The property is valued according to its highest and best use. The current use of the property is not dispositive: the value is determined by the price that the property would bring on the market. For example, if good farmland is vacant and historically unplanted, the condemning authority would still have to pay the price that good farmland will bring on the market. Suppose the property contains a leased building which has a lease very favorable to the lessor. The condemning authority is not bound by the terms of the lease--it pays what the market will now bring for the property. If the landowner has paid way too much for the property, the condemning authority doesn't reimburse landowner's cost, it pays fair market value.

Suppose several owners have interests in the land. Each owner receives the fair market value for that owner's interest. Note that the sum of each owner's interest must equal exactly the total fair market value of the property. Using leased property as an example of how the process works, imagine that the authority seeks to take a shopping center strip in which three tenants lease commercial space. In Minnesota, the fact finder first determines the fair market value of the property as a unit. Of course, the income produced by a comparable shopping center may help determine the fair selling price of the commercial strip. But the starting point is to determine the total value of the shopping mall.

The appraisal report will describe the property and the agency will determine a value based on the condition of the property on the day that the appraiser last saw it, as compared with other similar properties that have sold. The appraiser adjusts these comparable sales to account for differences between the condemned property and the comparables.

JUST COMPENSATION

Once the appraisal has been completed, a review appraiser will review the report to ensure that all applicable appraisal standards and requirements were met. The review appraiser will give the agency an approved appraisal to use in determining the amount of just compensation to be offered for the real property. This amount will never be less than the fair market value established by the approved appraisal.

If the agency is only acquiring a part of the property, any allowable damages or benefits to the remaining property will be included in this amount. The property remaining after a partial acquisition may suffer damage, because it is no longer connected to, or part of, the land which has been taken. Generally, the owner of the property will be entitled to "severance damages" defined as the loss in market value inflicted on the land not taken. The right to severance damages arises only when some, but not all, of the owner's land is being taken. Severance damages may be awarded for land which is contiguous, but not named in the condemnation proceeding. In addition, in Minnesota, a landowner may be entitled by special statute to damages to land which is not contiguous to the taking, if the landowner can show that the non-contiguous tract is so connected to the property taken that the taking from the one parcel damages the other.

The agency must provide the owner with a copy of each appraisal the agency has obtained for the property at the time an offer is made, but no later than 60 days before presenting a condemnation petition. Upon request, the agency must make available to the owner all appraisals of the property.
If the agency is considering both a full and partial taking of the property, the agency must obtain and provide the owner with appraisals for both types of takings.

BUILDINGS, STRUCTURES, AND IMPROVEMENTS

Sometimes buildings, structures, or other improvements considered to be real property are located on the property to be acquired. If this is the case, the agency must offer to acquire at least an equal interest in such buildings, structures, or other improvements if they must be removed or if the agency decides that the improvements will be adversely affected by the public program or project.

An improvement will be considered real property if owned by the owner of the real property on which it is located.

TENANT OWNED BUILDINGS, STRUCTURES, AND IMPROVEMENTS

Sometimes, tenants lease real property and build or add improvements for their use. Frequently, they have the right or obligation to remove the improvements at the expiration of the lease term. If, under State law, the improvements are considered to be real property, the agency must make an offer to the tenants to acquire these improvements.

In order to be paid for these improvements, the tenant-owner must assign, transfer, and release to the agency all right, title, and interest in the improvements. Also, the owner of the real property on which the improvements are located must disclaim all interest in the improvements.

Just compensation for an improvement will be the amount that the improvement contributes to the fair market value of the whole property, or its value for removal from the property (salvage value), whichever is greater.

A tenant-owner can reject payment for the tenant-owned improvements and obtain payment for his or her property interests in accordance with other applicable laws. The agency cannot pay for tenant-owned improvements if such payment would result in the duplication of any other compensation otherwise authorized by law.

If improvements are considered personal property under State law, the tenant-owner may be reimbursed for moving them under the relocation assistance provisions. The agency will personally contact the tenant-owner of improvements to explain the procedures to be followed. Any payments must be in accordance with Federal rules and any applicable State laws.

It is quite common for commercial leases to contain a clause which seeks to reserve the entire award exclusively to the landlord. These clauses are enforceable in Minnesota, although the tenant will still receive Uniform Relocation benefits. In Minnesota, a commercial lease which terminates upon condemnation effectively deprives the tenant of compensation for the value of its leasehold interest.

LOST PROFITS

When a business property is taken, the owner loses business opportunity. However, in Minnesota, an owner does not typically receive compensation for lost profits or business opportunity. The theory behind this rule is that the owner receives enough money to find a comparable location, so that the owner should be able to relocate and continue receiving the same income and profits at the new location. Relocation benefits are designed to assist the owner with some of the expenses associated with the move.

An exception to the general rule of no compensation for lost profits has recently been enacted by the Minnesota legislature. A property owner must now be compensated where 51 percent or greater of the driveway access has been permanently eliminated, and as a result of the loss of driveway access, revenue at the business was reduced by 51 percent or greater.

EXCEPTIONS TO APPRAISAL REQUIREMENTS

An appraisal is not required if a property owner elects to donate the property and releases the agency from the obligation of performing an appraisal.

REIMBURSEMENT OF PROPERTY OWNER APPRAISAL FEES

The owner may obtain an appraisal of the property proposed to be acquired. The owner is entitled to reimbursement for the reasonable costs of the appraisal from the acquiring authority up to a maximum of $1,500 for single family and two-family residential property and minimum damage acquisitions and $5,000 for other types of property. In order to be reimbursed, the owner must provide the agency with a copy of the owner's appraisal at least five days before a condemnation commissioners' hearing. The agency must pay the reimbursement to the owner within 30 days after receiving a copy of the appraisal and the reimbursement information. The agency and the owner can agree that the agency may pay the reimbursement directly to the appraiser.