Just Compensation

Overview

Just compensation is the money paid to a property owner when the government legally takes private property for public use. This remedy comes from the Fifth Amendment’s Takings Clause and is meant to place the owner, as nearly as possible, in the same financial position they would have occupied if the taking had not occurred.

What counts as a taking

• Eminent domain: the government’s authority to seize private property for public use (roads, utilities, infrastructure).
• Legal remedy: payment of just compensation, typically measured by fair market value (FMV).

Why fair market value can be contested

Fair market value addresses economic loss but often does not capture non‑economic harms such as relocation costs, emotional attachment, loss of community ties, or disruption to a business. Owners frequently dispute the government’s valuation, arguing that FMV is miscalculated or that additional damages should be awarded.

Key factors considered in valuation

• Fair market value of the land: the price a willing buyer would pay a willing seller under no compulsion to transact.
• Fair market value of improvements: value of buildings, structures, and other physical or economic improvements that increase the property’s worth.
• Residue (severance) damages: loss in value to the portion of property that remains after a partial taking (e.g., reduced usability, changed access or shape).
• Benefits or offsets: any increase in value to the remaining property caused by the public project (sometimes credited against compensation).

Common valuation methods

• Market approach: compares the taken property with recent sales of similar properties (most common for residential and readily comparable parcels).
• Income approach: converts expected future income into present value using net operating income and a capitalization rate (used for income‑producing properties).
• Cost approach: estimates land value plus the cost to replace structures minus depreciation (useful for unique or specialized improvements).

Appraisers may use one or more of these methods depending on property type and available data.

Practical steps for property owners

• Obtain an independent appraisal early to benchmark valuation.
• Document improvements, income records (if applicable), and costs related to the property.
• Evaluate severance damages if only part of the property is taken.
• Consider legal counsel experienced in eminent domain to negotiate or litigate—statutory relocation or additional compensation remedies vary by jurisdiction.

Key takeaways

• Just compensation is intended to restore owners financially after a lawful taking, usually by paying fair market value.
• Valuation can be complex: land value, improvements, severance damages, and offsets all matter.
• Market, income, and cost approaches are the primary valuation methods; choice depends on property characteristics.
• Owners should document value components, seek independent appraisals, and consult counsel when appropriate.