Condemnation in Real Estate: A Comprehensive Guide

CEO Khai Intela
In the world of real estate, the right to private property is highly regarded in the United States. However, it's crucial for landowners to understand the concept of condemnation and how it can potentially impact...

In the world of real estate, the right to private property is highly regarded in the United States. However, it's crucial for landowners to understand the concept of condemnation and how it can potentially impact their properties due to government seizure or building code violations. In this article, we will delve into the depths of condemnation in real estate and provide answers to frequently asked questions to ensure that you have a clear understanding of this topic.

What is Condemnation in Real Estate?

Condemnation in real estate refers to a situation where the government or another authoritative body orders the immediate evacuation and vacating of a property. The reasons for condemnation can range from concerns about the property's safety and dilapidation to the government's desire to exercise its right of eminent domain. While condemnation can be temporary or permanent, it entails the legal takeover of the property.

Types of Condemnation in Real Estate

In most cases, condemnation occurs for two primary reasons:

Dilapidated & Unsafe Buildings

Condemnation is typically imposed on buildings that are deemed unsafe or dilapidated to ensure the safety of occupants and neighboring buildings. However, if appropriate repairs are made, a condemned building can be restored to its occupancy status. The determination of whether a building is unsafe or dilapidated depends on federal, state, and local housing codes and safety standards. Neglect, accidents, or natural disasters like fires and earthquakes can lead to hazardous conditions. In some rare cases, renovations may necessitate inspections that reveal pre-existing unsafe conditions or code violations, resulting in condemnation.

Eminent Domain

Under the legal doctrine of eminent domain, both federal and state governments have the authority to condemn properties and assume control of their titles when necessary. This right empowers the government to take possession of private property for public purposes. However, it is important to note that just compensation must be provided to the landowner in addition to the property being taken. For instance, if the government needs to build a military base on your property, they can exercise eminent domain and compensate you for the loss.

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Condemnation vs. Eminent Domain

Although closely related, condemnation and eminent domain are not exactly synonymous. Eminent domain is the recognized right of the government to seize land or property from private citizens. On the other hand, condemnation refers to the act of fulfilling eminent domain by taking control of the land or property from the landowner. In essence, condemnation cannot occur without the exercise of eminent domain.

The Eminent Domain & Condemnation Process

Due to the significance of private property rights, the invoking of eminent domain must adhere to a rigorous process. Here is a breakdown of the general steps involved:

  1. Property Appraisal: The government assesses the fair market value of the property. Subsequently, they offer the property owner a "pro tanto award," which can be accepted without forfeiting the right to sue the government. Alternatively, both parties can reach a fair settlement agreement. It is worth noting that pro tanto property payments are usually smaller compared to what owners might receive if they decide to go to court.

  2. Notification and Appraisal: The condemning authority must provide timely notification of the initiation of the condemnation process and furnish the property owner with a copy of the appraisal. The property owner has the right to contest the amount offered in court, potentially going through multiple appeals.

  3. Necessity of Condemnation: The property owner can contest the necessity of the condemnation by taking the case to court. The court must determine whether the condemnation is necessary or if the government's invocation of eminent domain is valid. If the court concludes that condemnation is necessary, the property owner must eventually accept the compensation amount deemed appropriate by the court or a special commissioner to proceed with the condemnation.

Other Examples of Condemnation in Real Estate

While safety concerns and the invocation of eminent domain are the primary reasons for condemnation, there are other situations where condemnation may arise. For instance:

  • Communities with inadequate housing inventory might use eminent domain to secure properties for building additional housing, such as condominiums or apartment complexes.
  • Condemnation proceedings are not always permanent, and they may not entail the seizure of an entire property. Partial condemnation can occur when a local government needs to widen a roadway or install a community driveway. Temporary condemnation can also happen when the government requires property for police action. Likewise, a construction company may temporarily seize part of a property to conduct plumbing or electrical work before returning the ownership once the work is complete.

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What is Inverse Condemnation in Real Estate?

Inverse condemnation refers to a legal provision that allows property owners to receive just compensation if their property is damaged during public use. This applies to utility companies, government agencies, and is protected by the 5th Amendment of the U.S. Constitution, as well as state constitutions. For instance, if a power line installed by a utility company on a landowner's property causes a fire that damages the landowner's home, the landowner has the constitutional right to sue the company and receive compensation based on inverse condemnation. This right safeguards landowners in situations where public projects impact their property without their consent.

Condemnation in Real Estate FAQs

Landowners facing condemnation often have numerous questions, particularly when eminent domain is involved. Here are answers to some of the most commonly asked questions:

Who Can Condemn My Property?

Any federal, state, or local government entity has the authority to condemn private property. This includes various government agencies such as the FBI, CIA, NSA, and police agencies. Moreover, private entities like public utility companies and common carriers also have the power to invoke eminent domain for necessary work.

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

If your property is condemned, you are always entitled to receive fair market value compensation, whether the condemnation is temporary or permanent. In cases where only a portion of your property is taken, you are entitled to recover any decrease in market value for the remaining portion.

What Can I Do Before My Property is Condemned?

Regardless of the circumstances surrounding property seizure, it is crucial to seek the advice of an attorney. Additionally, hiring an independent real estate appraiser can help ensure that the condemning authority offers you fair market value compensation for your property. This proactive approach will protect you from being taken advantage of and will prepare you for any legal proceedings that may arise.

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

No, you are not obligated to accept the condemning authority's offer. You have the right to take the matter to court. It's important to note that government seizures involving eminent domain generally favor the government. Nonetheless, going to court can be advantageous in maximizing the compensation you receive for your property.

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

If you decline the condemning authority's offer, your compensation will be determined based on condemnation law and the applicable court procedure. The court will evaluate the case, review multiple appraisal reports, and arrive at a compensation amount based on their judgment.

How Will My Property be Appraised?

Property appraisal involves several approaches, including the comparable sales approach, the cost approach, and the income approach. Appraisers consider factors such as the fair market value of surrounding properties, any improvements or unique features of your property, and the income generated by your property, if applicable.

Why Are Some Appraisal Estimates Different Than Others?

Although appraisal involves an examination of non-subjective attributes, it is ultimately a subjective process. Factual assumptions, personal biases, market data selection, and other factors can influence the final market value estimate presented by an appraiser in court.

In Conclusion

Condemnation in real estate is an aspect that landowners must be prepared for, as it is not entirely within their control. However, condemnation does not necessarily mean that you will be unfairly treated. By ensuring that you receive fair market value for your property and obtaining your own appraisal, you can increase the likelihood of receiving just compensation if the government ever condemns your property.

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