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Eminent Domain, Private Property And The Public Good: What You Need To Know

Kevin Graham5-minute read

September 20, 2021

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Let’s say you buy a home on a beautiful piece of land. Three years down the line, the local government comes to you and says they want to take your land for public use. Perhaps it’s developing a public park or expanding a highway. When a government comes to you about this, it’s exercising its power of eminent domain.

In this article, we’ll touch on what eminent domain is, how it works in real estate and other property areas and the origins of the concept. We’ll finish by taking a deeper look at how the proceedings work

What Is Eminent Domain?

Eminent domain is the power granted to federal, state and local governments to take your property for public use. In exchange, the government has to provide you just compensation. We'll get into this more later on, but this means that the offer paid to the property owner has to be fair.

We’ll get more into this when we talk about the origins of the concept below, but there’s an implicit reference to eminent domain within the Bill of Rights to the U.S. Constitution. Since then, the power granted to the federal government has been found to extend to state and local authorities as well.

How Does Eminent Domain Work In Real Estate?

There’s a process to eminent domain. The government won’t come to and say they’re taking your land tomorrow. Let’s say the government wants to expand a highway to relieve traffic congestion. In order to make that plan work, your existing residence needs to be purchased and demolished to facilitate the widening.

What’s most likely to happen is that the governmental authority that wants your land will make you an offer. If you accept the offer, the sale goes forward. You use the proceeds to find a new place to live. If you don’t wish to sell under any circumstance or can’t come to an agreement on a price, these differences are resolved in a condemnation proceeding, which we’ll discuss later on.

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Does Eminent Domain Only Apply To Real Estate?

While eminent domain is typically thought of as applying to real estate, it can technically be applied to any privately held property such as a car or your baseball card collection. However, as with real estate, the government would have to show a public use reason for taking your mint condition Honus Wagner rookie card.

What Are The Origins Of Eminent Domain?

The origin of eminent domain in Western law comes from 17th century English common law. Because England doesn’t have a written constitution and everything comes from parliamentary power, it’s theoretically possible for property to be taken without compensation. In practice, consideration for the owner is paid.

Recognizing the need to give the government the ability to take property from citizens with fair compensation, the founding fathers built it in. The Fifth Amendment is more known for being the one that protects the accused from having to give testimony against themselves in a court of law. However, it also lays the ground rules for eminent domain right in the U.S. Constitution:

“…nor shall private property be taken for public use, without just compensation.”

This guarantee of just compensation was later applied to the states in court interpretations of the 14th Amendment. Because there’s tension between public and private interests, the principles of just compensation and due process are intended to balance these competing forces. The discussion up to this point brings to mind several other questions that we’re ready to cover.

What Is Public Use?

Among the aims listed in the preamble to the U.S. Constitution is the promotion of the general welfare of the people. In line with this broad language, courts have generally given wide latitude in terms of the definition of public use under eminent domain.

While it could be for something the government operates and maintains such as a road or park, it could be that an industrial park is being built that will provide hundreds or thousands of jobs to the community, for example. The important thing is just to prove a public interest.

What Is Just Compensation?

Simplifying the intent of the just compensation wording, you could say that just compensation is fair value for the property being taken, whether in the form of money or equivalent property. However, that’s where the rub comes in. You have to come to some decision as to what constitutes fair.

This can be complicated by the fact that very often people have not just a financial investment, but also an emotional investment in their homes. Courts generally rely on a fair market value for the property to determine just compensation. However, it’s often difficult to determine a fair market value. Let’s see why with an example:

A city wants to widen an existing road. As part of this, they’re using eminent domain to claim 10 feet at the front of a commercial property. However, if you were selling something, you would never sell just those 10 feet. Because there’s no market existing, it’s difficult if not impossible to determine a true fair market value.

What Is A Condemnation Proceeding?

What happens when you and the government can’t come to an agreement on what your property is worth? In these cases, the government will generally file a lawsuit called a condemnation proceeding. While the lawsuit is heard, the government will present its case about the project being proposed and the value of your land.

As the defendant in this proceeding, you have a couple of choices: You can challenge the legal authority of the government to take your property. However, as mentioned above, governments have broad latitude in terms of what constitutes public use. Your other option is the more common occurrence: you’ll challenge the value the government is giving you. You could end up with a battle of the appraisers and the court having to decide who is right.

What Is A Taking And Who Can Take?

It’s well established that governments can use eminent domain to take property with just compensation for something that they’re going to own and operate. However, as noted above, public use can mean a government taking property for a private entity on the theory that the project it’s going to benefit the public. The test is open to interpretation and there’s no shortage of controversy.

State and local laws differ across the country, so the legal landscape in your area may look different than it does in another. One thing to keep in mind is that certain private businesses under strict governmental regulations, like utility companies, can be granted the power to exercise eminent domain where necessary.

What Is Inverse Condemnation?

Eminent domain is when the government takes property to advance a public project. There’s a related, but different, concept known as inverse condemnation that we should touch on.

Inverse condemnation occurs when a property is already taken and the results of modifications to that property for the project have physically damaged or hurt the value of other property still held by individuals. For example, if the fumes from an oil refinery built on land taken by public domain substantially harm the resale value or prevent the full enjoyment of nearby property, the owners of that property may be able to file a lawsuit. If the plaintiffs prevail, the government would have to compensate these owners.

The Bottom Line: Eminent Domain Allows Public Good To Outweigh Private Property Rights, With Due Process And Just Compensation

Eminent domain allows the government to take your property to be used for a public purpose as long as they pay you based on fair market value, referred to as just compensation. Meanwhile, inverse condemnation is when someone successfully sues the government because the harm from something being taken under public domain has hurt the value of their separate or remaining private property.

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Kevin Graham

Kevin Graham is a Senior Blog Writer for Rocket Companies. He specializes in economics, mortgage qualification and personal finance topics. As someone with cerebral palsy spastic quadriplegia that requires the use of a wheelchair, he also takes on articles around modifying your home for physical challenges and smart home tech. Kevin has a BA in Journalism from Oakland University. Prior to joining Rocket Mortgage, he freelanced for various newspapers in the Metro Detroit area.