What is Eminent Domain in Real Estate?

By: , Contributor

Published on: Dec 17, 2019

Learn what eminent domain is and how it can impact property owners.

In the United States, there is a law called eminent domain that allows the government to take private property with or without permission for public use. If you’re a property owner, it’s important that you know how the law works and what options are available to you when dealing with eminent domain.

What is eminent domain?

Government bodies, like county or city municipalities, may from time to time require part or all of a private property for public use, such as a public building or space like a post office, park, or health facility; to expand a road; to build a highway; or for other public use.

Under the Fifth Amendment of the United States Constitution, the government has the right to take private property for public use as long as the property owner is provided just compensation. This is called eminent domain. There are three types of "takings" that happen with eminent domain:

  • Complete taking -- when the entire property is purchased for public use
  • Partial taking -- when only a portion or part of the property is purchased for public use
  • Temporary taking -- when the property is only needed for a fixed period of time
eminent domain

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How does eminent domain work?

Eminent domain is handled through a process called condemnation. The government will notify the landowner with a condemnation notice that states its intention of using its power of eminent domain.

While eminent domain laws vary from state to state, in most instances, the government will first try to negotiate a purchase price for the property. If agreed, the property or portion of the property is temporarily or permanently deeded to the government for public use and the property owners are paid their agreed-upon just compensation. Just compensation is the fair market of the property or land which is determined in one of three ways:

  • The market approach uses comparable properties that recently sold to derive a fair market value, similar to comparative market analysis (CMA) or appraisal. Typically used with residential real estate or property that does not income-producing.
  • The income approach uses the business's net operating income (NOI) to determine a value, similar to determine the value of a commercial property with a cap rate. Typically used with income-producing properties.
  • The cost approach determines the value of the land and the cost to replace the building taking depreciation of the building into account. Typically used when a property is so unique that the market approach and income approach and not viable ways to determine market value.

If the property owners feel the offer price or just compensation is not fair, they have the right to dispute it. If an agreed-upon price is not reached, the situation will proceed to a condemnation hearing, where the court establishes a fair market value for the property.

What property can be taken in eminent domain?

The government can legally take real property such as vacant land or land with commercial or residential real estate or intellectual property for the benefit of public use. However, in most states, certain properties being used as cemeteries, gardens or orchards, or factories cannot be taken through eminent domain.

If the property is deemed unsafe, is abandoned for a set period of time, or is being utilized for illegal practices, it can be seized and taken through a forced sale without paying just compensation.

What are my rights as a property owner with eminent domain?

If the government is trying to take your property, you have the right to receive just compensation for the property. In most states, the just compensation will include relocation costs and costs for moving certain building materials, such as gates, signs, or rights of entry. It is common to negotiate an acceptable price for the property, and you always retain the right to challenge or dispute the compensation amount. Ultimately though, even if eminent domain is challenged, the property will be taken for the property's fair market value established by the court.

There are certain instances when you may be negatively affected by eminent domain even though your property was not taken for public use. For example, a newly built highway may place a pillar just outside of your home, or the land around your property was rezoned, lowering the property's value or altering your ability to use the land. In this instance, you have the right to inverse condemnation, in which you are requesting just compensation from the government.

In summary

If you own property, in most cases the government can take your property for public use, though rarely can a property be taken without just compensation or without notice. If you have recently been contacted about eminent domain and feel you are not being fairly compensated for the land, talk to an eminent domain attorney who can explain your rights, inform you about the proper steps, and assist you with the process of eminent domain.

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