July 27, 2006
Eminent Domain Department
The Value of Land Under Eminent Domain
Radley Balko says this:
In Tacoma, Washington, the "Sound Transit," a government agency, offered a landowner $439,000 for a piece of property in 2004. Finding the offer low, the landowner sued, and eventually lost in the State Supreme Court. Now, the Sound Transit is offering just $240,000, citing a "reassessment" of the property's value. That's about half what the same agency paid for an adjacent piece of land (perhaps the value of the land declined because it's now known that it's targeted for eminent domain!).
Of course, for property tax purposes, the government has assessed the land at $303,400.
Funny how the value of the land changes, depending on what the government wants to do with it.
Of course, the value of land does change depending on what you want to do with it. That's the problem with determining the price of land for purposes of eminent domain: Everybody has a different idea of what the land is worth.
If you and I are both looking at a piece of land, we probably have different plans for it. Maybe you want to farm it, and I want to build an amusement park. So how do we decide which of us gets it? How do we reconcile your subjective estimate of the value of the land for farming with my subjective estimate of it's value for entertainment?
In most cases, it's actually very simple. The free market tells us. If I think the land will be worth more to me than you think it will be worth to you, I'll be willing to offer more money for it than you.
Note that the free market works even if one of us owns the land instead of a third party: If you own the land, you can decide if my offer is more than the value of the land to you. If it is, you sell. If not, not. Conversely, I get to decide if your asking price is higher than the value I place on the land. If it is, I pass on by. If not, I buy the land.
Sure, we may negotiate over the final price, but on the whole this is a very fair and efficient system that has some attractive features: Every party to the transaction is a willing participant, and every party has to put their money where their mouth is. In particular, if the buyer makes an offer that's less than the value of the property to the seller, the buyer doesn't get the property. The risk of offering too little money is that the buyer will not get what he wants.
None of this is true about an eminent domain seizure. The property owner is involved unwillingly, and the government isn't taking a risk that the offer might be turned down. And if there's no risk to a low offering price, there's no reason not to offer less than the property is worth. Also, since the government doesn't have to show a profit, the governments's willingness to make an offer has nothing to do with the value of the property to the government and everything to do with the influence of powerful special interests.
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