Condemnation in real estate refers to the process of the government taking ownership of private land or property for the purpose of public use or economic development. For example, a town or city may be seeking to expand or make improvements, such as for new infrastructure or buildings, that requires the full or partial use of a private property to complete the project.
Real estate and the Fifth Amendment
Eminent domain is a law backed by the Fifth Amendment that grants the government the right to seize private property for its own use. However, the current owner of the land or property must receive "just compensation," per the Constitution.
The condemnation process
While laws vary by state, the process of condemnation generally proceeds in this manner:
- The government or government agency identifies private property or private land to be used for public use or economic development.
- The property is appraised to determine its fair market value. As compensation to the owner, the government will offer a partial payment known as a pro tanto (to a certain extent) award.
- Should the owner refuse to sell, both sides must appear at a court hearing. The property owner can then respond and argue their side.
- The court decides whether to allow the condemnation proceedings. If one party isn't content with the outcome, they may appeal the court's decision.
While the property owner will most likely not be able to challenge the condemnation process itself, they might be able to argue for higher compensation. It's advisable for a property owner to get an independent appraisal of the property's worth as well as consult with a real estate attorney. However, the court will only look at the fair market value of the property, not sentimental value or any other personal value the owner might wish to be considered.
Even if the property owner challenges the offered compensation, it doesn't slow down the condemnation process. Many states have "quick take" laws that favor the government in getting started quickly on construction and renewal projects. As a result, the compensation will be awarded quickly so title and ownership can be transferred as soon as possible. Any delays could result in decline in the property value, which might hurt the property owner in the long run.
Other condemnation scenarios
Not all kinds of condemnation involves property for public use. In communities where there is a significant lack of housing inventory, the city or town might use the power of eminent domain to secure property to build more housing, like apartment complexes and condos.
Additionally, not all condemnation proceedings involve seizing the full property, nor is the seizure permanent. For example, part of an owner's private land might be seized to widen a roadway -- they can remain on their property, but they're being compensated for part of it by the government. Or there might only be an easement rather than a full transfer of property ownership; for example, construction crews need access to private property to install plumbing used by the new building.
In situations where properties are unkempt or deteriorating, the town or government agency may condemn the property in order to remove the blight and foster community renewal by renovating or building something new. Eminent domain might be used to secure the property without approval of the owner. In this case, a property owner can avoid condemnation through regular maintenance of the property and land.
The bottom line
Regardless of the circumstances, if you own a property for which the government has issued a notice of condemnation, get a private appraisal and retain legal counsel. Condemnation is not a process any property owner should take on alone if you want to ensure you're being offered just compensation for your real estate investment.