Condemnation in Real Estate: Definitions & FAQs

Key Takeaways

The right to private property is often thought of as sacred in the United States, but it’s not without its limitations. Indeed, landowners must understand condemnation in real estate and how it could eventually affect their properties due to government seizure or building code violations.

Let’s break down condemnation in real estate and answer some frequently asked questions in detail.

What is Condemnation in Real Estate?

In real estate, condemnation occurs when the government or another authority orders that a property be vacated and kept vacant immediately. Depending on the context of the order, condemnation can be permanent or temporary, and the government can order condemnation for several reasons.

Types of Condemnation in Real Estate

In most cases, the government orders condemnation for real estate for two primary reasons: the property is unsafe or dilapidated, or they wish to take control of the property legally under eminent domain.

Dilapidated & Unsafe Buildings

A dilapidated or unsafe building can be subject to condemnation so that harm doesn’t come to the occupants or the occupants of neighboring buildings. However, a building that is condemned because it is unsafe might be restored to occupancy status if appropriate repairs are made.

Whether a building is unsafe or dilapidated depends on federal, state, and local housing codes and safety standards. Buildings can become hazardous because of a lack of care and attention or after a harmful event, like a fire or an earthquake.

In a few rare cases, renovations can lead to condemnation if the renovations require inspections that find pre-existing unsafe conditions or code violations.

Eminent Domain

The legal doctrine of eminent domain gives the US federal and state governments the right to condemn property and take control of property titles when needed.

Under eminent domain, the condemning authority has to provide so-called “just compensation” in addition to taking control of the property for public purposes. For example, if the government “needs” to build a new military base on your property, they can take control of your property through eminent domain and compensate you for the loss.


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Condemnation vs. Eminent Domain

Although they are closely related, condemnation and eminent domain are not exactly the same thing. Eminent domain is the stated right of the government to take land or property from private citizens. Condemnation is the act of fulfilling eminent domain and taking control of the land from the landowner.

Condemnation cannot occur without eminent domain, not vice versa.

Eminent Domain & Condemnation Process

Because the right to private property is a very serious matter, the condemning authority must follow a rigorous process to invoke eminent domain properly.

First, government authorities have to appraise the property to determine its fair market value. They then offer the owner a “pro tanto award,” which the owner can accept without giving up their right to sue the government. Alternatively, both parties can come to a fair settlement agreement. Note that pro tanto property payments are typically small compared to how much property owners usually get if they take the matter to court.

Next, the condemning authority has to provide timely notification that they will begin the condemnation process and provide the property owner with a copy of the appraisal. As noted, the property owner can contest the amount offered in court and go through several appeals.

The property owner can also contest whether the condemnation is necessary by taking the case to court. For condemnation to proceed, the court must deem condemnation necessary or find the government’s reason for invoking eminent domain to be valid. If the court decides to allow condemnation, the property owner must eventually accept an amount as deemed appropriate by a court or a special commissioner so that condemnation can proceed.

Other Examples of Condemnation in Real Estate

While most condemnation occurs because of safety issues or the government invoking eminent domain, it can also occur due to other reasons.

For example, some communities may not have enough housing inventory for their citizens. In such circumstances, the local city government can use eminent domain to secure property to build extra housing, such as condominiums or apartment complexes.

In addition, condemnation proceedings are not always permanent and may not always involve seizing the entire property. For example, a local city government may seize part of a landowner’s property to widen a roadway or install a community driveway for their neighbors. Or the government may decide to invoke eminent domain and take control of property temporarily for police action. Alternatively, a construction company may seize part of a property to conduct plumbing or logical work in private, then restore ownership of the building to the owner once they are finished.

what is condemnation

Condemnation in Real Estate FAQs

Landowners facing condemnation typically have a lot of questions, especially if an authority is invoking eminent domain. Read on for answers to some of the most commonly asked questions regarding condemnation in real estate.

Who Can Condemn My Property?

Any federal, state, or local government has the right to condemn private property. This right extends to government agencies such as the FBI, CIA, NSA, police agencies, etc.

In addition, the government allows private entities like public utility companies or common carriers to invoke eminent domain to carry out necessary work.

What is Inverse Condemnation in Real Estate?

Inverse condemnation allows property owners to receive just compensation if their property is damaged during public use, and it applies to utility companies and all government agencies.

For example, if a utility company installs a power line on a landowner’s company, and the power line causes a fire that burns down the landowner’s home, the landowner is entitled to compensation under inverse condemnation.

How Much Am I Entitled to When My Property is Condemned?

You are always entitled to the fair market value of your property if it is taken temporarily or permanently. If only a portion of your property is taken, you will be entitled to recover any decrease in market value for your remaining property.

What Can I Do Before My Property is Condemned?

No matter the circumstances of your property seizure, you should always seek the advice of an attorney. You may also wish to hire an independent real estate appraisal to ensure that the condemning authority provides you with the fair market value for your property.

Having your own eyes on the process will ensure that you aren’t taken advantage of and that the condemning authority doesn’t lie in court, should things come to that.

Do I Have to Accept the Condemning Authority’s Offer?

No. You can always take the condemning authority to court. However, keep in mind that most government seizures that involve eminent domain are ruled in the government’s favor. Still, going to court can be advantageous to make sure you receive the maximum compensation possible for your property.

How Will My Compensation Be Determined If I Decline the Offer?

Your compensation will be determined based on condemnation law and the procedure applicable in the court case that follows. In other words, the court will examine the case, examine multiple appraisal reports, and come to a compensation amount based on their opinion.

How Will My Property be Appraised?

Your property will be appraised using several approaches, including the comparable sales approach, the cost approach, and the income approach. They may look at the fair market value of surrounding properties, any improvements or features that your property has, and how much income your property produces, if any.

Why Are Some Appraisal Estimates Different Than Others?

Although appraisal includes examining non-subjective attributes, it is ultimately a subjective process. The factual assumptions, personal biases, selection of market data, and other factors can influence the final market value estimate that an appraiser presents to court.

Summary

Ultimately, condemnation in real estate is something landowners must prepare for as it is not something you can control. That said, condemnation doesn’t necessarily mean you’ll be cheated. Ensuring that you get fair market value for your property and ordering your appraisal can go a long way to ensuring that you receive just compensation if the government ever condemns your property.


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Sources

https://www.justice.gov/enrd/history-federal-use-eminent-domain
https://www.counties.org/sites/main/files/file-attachments/inverse_condemnation_fact_sheet_league__csac.pdf

Real Estate Investing Strategies
Real Estate Investing Strategies
Real Estate Investing Strategies
Real Estate Investing Strategies
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Real Estate Investing Strategies