A guide to understand what is eminent domain in real estate

If you own a piece of property, something called eminent domain could affect you. You must know what is eminent domain in real estate and how it affects a property owner.

If the government – whether federal government, state government, or local government – needs your land for a public project, say for building a highway, it can take it legally from you by following due process.

First, they’ll offer to buy your property at a set price. If you agree, they buy it, and you can use the money to move elsewhere. And, if you think the price is too low, you can negotiate for more.

But, if you refuse to sell or can’t agree on a price, things go to a condemnation proceeding, where the court decides how much you should be paid for your property.

What is eminent domain in real estate?

To simply explain it – eminent domain is when the government can take any private property for public use, but they have to compensate the owners fairly. This can happen either by physically seizing the property or by restricting its use so much that it’s like taking it away. 

The Fifth Amendment of the United States Constitution establishes that if the government takes private property for public use, it must provide “just compensation” to the property owner. It states that the government shall not take any private property for public use without just compensation. This principle ensures that individuals are fairly compensated when their property rights are infringed upon for the greater public good. 

To use eminent domain, the government needs four things from the Fifth Amendment: (1) private property, (2) taken, (3) for public use, and (4) with fair compensation. However, what counts as benefiting the public can vary and cause disputes.

Public use typically involves things such as building roads or parks that the government runs. Moreover, it can also include projects such as constructing industrial infrastructure that creates jobs. The important thing is for the government to show that a project helps the public.

What is a good example of eminent domain?

A good example whereby the U.S. government can seize private property for projects that help the public is when a city needs to build a new highway to alleviate traffic congestion. To do this, the city might need to acquire land from several private property owners along the proposed route. Even if some property owners are unwilling to sell, the city can use eminent domain to acquire the necessary land for the public project, ensuring that the highway can be built to benefit the public or community as a whole.

Another example is when a utility company needs to install power lines to enhance the electrical grid’s efficiency and reliability. Suppose the proposed route for the power lines traverses through private properties. In that case, the utility company may utilize eminent domain to acquire the necessary easements or land parcels from property owners to construct and maintain the power infrastructure. 

What are the types of takings?

There are two primary forms of takings under eminent domain:

Physical taking

This occurs when the government acquires ownership or possession of private property directly. It typically involves the physical seizure or appropriation of land or real estate for projects such as infrastructure development (roads, bridges, public buildings) or public utilities (power lines, pipelines).

Regulatory taking

In contrast to physical takings, regulatory takings involve government regulations that significantly restrict the use, development, or value of private property to the extent that it is akin to a seizure. This can include zoning restrictions, environmental regulations, or land-use ordinances that substantially diminish the property owner’s rights or economic interests.

Furthermore, takings can be complete taking where the government takes all of a property or partial taking where the government only takes part of a property, like a strip for a road expansion.

Takings can have different timeframes:

1. Permanent taking: The government keeps the property forever.
2. Temporary taking: The government uses the property for a while, say for construction, and then returns it to the owner.

How does eminent domain work in the real estate industry?

Eminent domain is a powerful tool that enables governments to pursue projects that serve the public interest, such as infrastructure improvements or urban redevelopment. In all eminent domain cases, the government is obligated to provide “just compensation” to the property owner. 

This compensation aims to help property owners financially and make sure they aren’t unfairly affected by losing their property rights.

However, it also raises important questions about property rights, government authority, and the balance between public welfare and individual liberties.

How does the government determine just compensation?

Just compensation generally means fair market value or the price that a willing buyer would pay to a willing seller in a voluntary transaction. Determining the amount typically involves evaluating comparable sales of similar properties in the area to establish a baseline value.

However, unique factors such as the property’s specific characteristics, potential for development, and income-generating capabilities may also influence its valuation. Additionally, sentimental value or personal attachments to the property are generally not considered in calculating compensation.

Appraisers and legal experts often collaborate to evaluate various aspects of the property and arrive at a fair compensation amount that reflects its true value in the market.

What happens if you do not agree with the compensation?

When you and the government can’t agree on your property’s value, the government might take legal action against you, called a condemnation proceeding. They’ll argue their case for the project’s benefits and your property’s worth.

As the defendant, you can challenge the government’s right to take your property. But this is tough because governments have broad power to decide what’s for public use.

More commonly, you’ll dispute the value the government gives your property. This often leads to a showdown between appraisers, who assess property worth. The Supreme Court then decides whose valuation is right.

What happens if you refuse eminent domain?

If you say no to eminent domain, the government can take you to court in a condemnation proceeding. There, you can argue that they shouldn’t take your property or are not offering enough money for it. The court decides if the government has the right to take your property and if they’re paying you fairly.

Protecting your property from eminent domain is difficult because you can’t predict what the government might need in the future. Eminent domain can apply to various types of property, and it’s hard to anticipate public or government needs. While it might feel unfair, it’s not easy for property owners to prevent their property from being taken by the government.

What is inverse condemnation?

Inverse condemnation is a legal action related to eminent domain. It happens when changes made by the government to a property they took hurt the value of nearby properties still owned by private individuals.

For example, if the government builds an oil refinery on taken land, the fumes might lower nearby home values. This hurts the local housing market.

The owners of these homes can sue the government. If they win the condemnation cases, the government has to pay them for the damage to their properties.

Last thoughts

Now you know what is eminent domain in real estate. It’s the government’s authority to seize property for public projects, as long as they pay the owners fairly. This power of eminent domain extends to various types of property, including land and intellectual rights, if it benefits the public. The government can take either all or part of a property permanently or temporarily. The downside is that sometimes, private parties may misuse eminent domain for personal gain, claiming it’s for the public good.

Written by Ramona Sinha. April 30, 2024

Ramona is the Senior Content Writer for Kukun. This experienced blogger uses simple and succinct words to decipher the complex phenomenon called life. She has written articles covering a broad range of topics, such as real estate, lending and mortgage, finance, business, taxation, home designs, home improvement projects, decor concepts, and more. An avid traveler, she’s a digital nomad at heart and an animal lover from the depth of her soul.