Eminent Domain ruling

[Jett]

? - Where do I say this? I went out of my way in my previous post to emphasize that I would settle for someone who followed the law instead of "expanding" it. If you prefer government officials who hold different viewpoints than you, please do me a favor and vote/lobby for them. I will lobby for those who hold the same viewpoint as me. That will be two votes for my side!

 

[nsxtasy]

You keep repeating yourself - and you are proving my point every time you do so.

 

[DanO]

This is quite an interesting ruling indeed. I’ve been the DDA (Downtown Development Authority) chairman in our small town for a number of years and I’ll tell you that this ruling will help local municipalities create high-density developments that will help compete with the endless sprawling strip malls and suburbs and help attract people back into our towns and cities to both live and shop.

I’m not yet certain if I’m in favor of the ruling (I do read Atlas Shrugged every year) but there are some possible public benefits and trust me, as someone who has been involved in the assemblage of private properties for public/private development, those last few holdouts are not always as innocent as they try to appear; usually they’re trying to hold out for unreasonable compensation and when I say “unreasonable” I mean that they think they have won the lotto and want to get PAID.

No doubt, there is public benefit in remaking our towns and cities back into places where people want to live. To redevelop a town, it takes both public and private investment.

For me, the question is this: can we allow a few property owners to stop the redevelopment of our towns. That is, can we allow a few people to hold up development that will reinvigorate towns and cities used by many?

If the answer is “yes” then our cities and towns will continue to be blighted compared to the neighboring suburbs.

If the answer is “no” then we might start going down the slippery slope of taking property for private development with very little or no public benefit.

As a property owner and a proponent of reinvigorating our towns and cities, I can see both sides to the story. I’m surprised that the city and/or developer couldn’t come to some sort of agreement with these landowners to move the development forward. In our town, we try to find two or more sites for our developments so that when we run across a few (or one) holdout then we can walk.

.02

DanO

 

[nsxtasy]

Very interesting perspective, Dan. I think the issue is a lot more complicated than some would make it out to be, and your practical illustrations shed light on that complexity. Thanks.

Correct me if I'm wrong, but... it sounds like, in your experience with such developments, the vast majority of the properties needed are acquired on the open market (presumably for "fair market value"), without invoking the municipality's powers of eminent domain, so that this issue winds up affecting only a handful of remaining holdouts. Is that correct? (I don't think the answer affects the principles on either side of the argument, but it has practical implications as far as the magnitude of who is affected.)

 

[queenlives]

This is quite an interesting ruling indeed. <snip>
For me, the question is this: can we allow a few property owners to stop the redevelopment of our towns. That is, can we allow a few people to hold up development that will reinvigorate towns and cities used by many?

If the answer is “yes” then our cities and towns will continue to be blighted compared to the neighboring suburbs.

If the answer is “no” then we might start going down the slippery slope of taking property for private development with very little or no public benefit.

<snip>
I’m surprised that the city and/or developer couldn’t come to some sort of agreement with these landowners to move the development forward. In our town, we try to find two or more sites for our developments so that when we run across a few (or one) holdout then we can walk.DanO

dano,

thx very much for sharing your perspective with us. (apologies for snippage) of course, without reading the case/ruling itself, the "usa today/ppt" summary leaves a lot to the imagination/loose interpretation... that's for sure.

like you, it seems to me there **must** have been some acceptable alternative sites available for the town's use but i'll confess to not knowing the answer to that.

all things considered, though, it seems incredible to me that this ruling occurred... and, no doubt, there will be widely differing interpretations of the ruling in the future.

thx again for your comments, dano - i look forward to reading more of them on the topic if/when you post.

hal

 

[DanO]

in your experience with such developments, the vast majority of the properties needed are acquired on the open market (presumably for "fair market value"), without invoking the municipality's powers of eminent domain, so that this issue up affecting only a handful of remaining holdouts. Is that correct?

Hi Ken

In my experience that is correct. I'm not 100% sure if it is the case here but I think all of their other neighbors sold (at the new market price) and probably made out pretty well (why else would they sell). The people who are left are either not concerned about getting top dollar for their property, or they think (or their lawyers think) they can get huge money by being the last key holdout. In my experience, a municipal or private party can work with the former but not the latter.

Keep in mind, these redevelopments do not happen quickly or in a vacuum. One development in our town has taken over 10 years to assemble enough property to build a building (private), and suitable parking (public) along our Main St. This project in total is receiving quite a bit of public money in terms of creating public parking, State economic development grants and Brownfield tax credits. It is the first real development in our downtown in over 50 years, even though tens of thousands of square feet are being built on greenfields all around us every year.

Here’s the typical process:
An area is targeted for economic development by our elected officials. A few years later, after many public meetings, the targeted area is re-zoned to accommodate the new development and the municipality starts assembling the targeted properties and applying for grant monies. This all happens in public over many years and the process is always newsworthy so if the project is not popular, it isn’t going to happen. If there are holdouts who don’t want to sell their property then the municipality is in a tight spot. Honestly, one or two residents can and do stop improvements to our towns and cities that would otherwise benefit thousands of residents.

The result:
Most developers head for green land and we spend HUGE money extending our water, sewer and roads to meet these new developments.

The real problem I have with this ruling is that it might give a municipality too much leverage in land purchasing. That is, it might lower “fair market” values for the effected properties. “Sell us your property for $100,000 or we will take it and give you $90,000.” Now in reality, nobody wants to engage in the condemnation process/eminent domain as it can get quite expensive for the municipality and typically if it goes to court, a jury will side with the landowner and sometimes, sometimes, give quite a nice reward (win the “lotto” so to speak). In my experience, the last holdouts lawyers know all about these lotto rewards.

It will be interesting to see how this ruling plays out.

DanO

 

[nkb]

I read a blurb in the Dallas Morning News a few days ago about a ruling in Texas, that "eminent domain" can not be used if the purpose is mainly commercial.

I'm sure most states will follow suit, if they haven't already.

 

[NSXLNT]

Dano, I appreciate your perspective on this but two things come to mind:
You point out that developers must spend huge amounts of money on establishing infrastructure for developments, which indeed they do. But when I read the wording you use, I feel ( maybe wrongly ) that you are implying this is an unfair burden on the developer. Again, if it's public development, for the common good of the community, then community dollars should be used to offset the cost. But the developer should be on it's own if the project is private, wouldn't you agree?
You refer to those who don't want to sell their property to developers as "holdouts", implying that they are the bad guys in these situations. Let's not forget that they own, and have improved and/or maintained something that someone else now wants to profit from. Simply offering them fair market value doesn't seem reasonable to me, if they don't want to sell. They should have the opportunity, within reason of course, to make a profit in order to be enticed to sell. If they choose not to sell, it doesn't make them the bad guys.
Again, here we have to weigh public verses private development.
I'm also glad that you pointed out the fact that there is danger of this ruling being used to artificially set values. In the case in New London, which I will remind everyone was for private development, how does one set a value on the lifetimes of memories that some of these families had in these homes?
I would also like to add that "heading for green land" for the sake of development is not necessarily a good thing for the long-term well being of the planet. Where does it stop? When do we say enough to shopping malls, offices and big-box retailers? JMO

 

[DanO]

NSXLNT, Good points.

When I said that “we” spend HUGE money extending water, sewer… I meant that we tax payers can end up paying for this.

When I say “holdouts” I do mean this in a negative way. In my experience, these are people who are holding up economic development for their unreasonable financial gain. Which, until recently was their right. And in my experience, neither party wins—the developer walks and the property owner loses a chance to sell their property at price typically higher than the current market.

Like I stated above, there are pros and cons to this ruling and there will be examples of abuses of this power. As nkb states above, expect several conservative states to restrict this practice altogether.

DanO

 

[nkb]

Just to clarify my earlier post:
A proposal for a constitutional amendment has passed committee in both the Texas House and Senate, and is expected to pass, since the majority of lawmakers have signed on as sponsors.

 

[nkb]

DanO,
I have little experience in these matters, so I have to defer to you. But, I find it hard to believe that every time the "eminent domain" rule is wielded, it always deals with greedy homeowners (just out of curiosity, how do you know these people's motivation?).

If I put myself in their situation, where my property is being appropriated for a Wal-mart (or even a public project), I can see their concerns.

If it's a private development, I have issues just as a matter of principle.
And, what if I recently made improvements to my house? I just spent $40K on putting in a nice pool, and $10K on landscaping. Maybe I spent $15K on hardwood floors. From my experience (at least in Texas), these upgrades very seldom cause a significant increase in the house value, definitely nowhere near the amount I spent. How do I get compensated for that?

What if I really do not want to move? Maybe I can't get an equivalent property for the same money?

Personally, if someone tried to force me to move, I would expect a significant amount of money to make it worth my while. This has nothing to do with being greedy, I hate moving.

How about an analogy (I love analogies)?

Your local government decides that your NSX is needed for public interest (I don't know what the reason would be, but let's pretend). They try to enforce eminent domain, and propose to pay you fair market value, and argue that you can go buy another sportscar with the money.
Would you give in, or would you argue that you should not be forced to sell a car that is special to you, and that it can't be replaced by "another" sportscar.

Now, if they offer you enough to buy an Enzo, you may be willing to talk. :biggrin:

 

[nsxtasy]

Just to clarify my earlier post:
A proposal for a constitutional amendment has passed committee in both the Texas House and Senate, and is expected to pass, since the majority of lawmakers have signed on as sponsors.

That was quick.

Since this ruling was decided by the United States Supreme Court, I assume you are referring to an amendment to the United States Constitution. Such an amendment becomes law only after passage by the legislatures of three fourths of the states.

Given that this ruling just happened so recently, I would have expected it to take longer than that just to draft wording of an amendment in consultation with a bunch of other states, before actually passing it anywhere.

And, what if I recently made improvements to my house? I just spent $40K on putting in a nice pool, and $10K on landscaping. Maybe I spent $15K on hardwood floors. From my experience (at least in Texas), these upgrades very seldom cause a significant increase in the house value, definitely nowhere near the amount I spent.

Actually, home improvements (done with reasonable taste and consistent with the value of the home and others in the neighborhood) nearly always cause a significant increase in the house value, and often the increase represents most of the amount spent. In certain circumstances, some can even increase the house value by more than the amount spent.

According to Remodeling Magazine as reported on the Quicken website, here are the top home improvements in terms of one year return on investment, and the average amount spent:

Minor kitchen remodel 88% $8,655
Second-story addition 83% $73,553
Bathroom remodel 81% $9,135
Bathroom addition 81% $13,918
Family room addition 75% $30,960
Major kitchen remodel 71% $31,090
Deck 55% $8,022

Granted, the improvements you mentioned are not the ones that give you the highest rate of return. But they do increase market value significantly.

Also, as Dan points out, these cases take place over quite a number of years, publicly, before properties are actually purchased under eminent domain. If you knew that a significant possibility of an eminent domain sale existed, it would be foolish of you to spend money on a major home improvement, especially of the kind that increases market value by a small percentage of the amount spent.

How do I get compensated for that?

You get fair market value of the house in its condition when sold, which means any improvements are taken into account. Not that you would get the entire amount you spent, but it's taken into account.

What if I really do not want to move?

This is the key issue.

Maybe I can't get an equivalent property for the same money?

If that is true, then the offer being made is not fair market value. This is just like when a car is totaled and you are offered a settlement by an insurance company. If you can prove that the offer is not fair market value - by finding prices of equivalent properties and showing that they are higher than the offer on the table - then insurance companies will raise their offer (or, you can litigate for the fair value). I assume the same process of negotiating and/or litigating the amount of the settlement can occur with eminent domain rulings.

The objections you raise - about not wanting to move, and about how to ensure that you get fair market value - are every bit as applicable when eminent domain is invoked for a public project, which is still allowed and is not at issue. The idea behind eminent domain is that the "greater good" occurs in these projects, even though some individuals may experience inconvenience, disruption, and yes, even financial loss in some cases (although, as Dan points out, the vast majority sell because they want to). Perhaps for this reason you feel that eminent domain is a bad policy in all cases in which it is applied. But it can still be applied for public purposes, even if an amendment passes to prevent its application for private projects.

 

[zomby woof]

i recall from history classes that the concept of "eminent domain", as applied in this country, has been in use pretty much from day one, and that its early applications were justified more under the guise of " greater public good", rather than "just compensation".

the eminent domain ruling was used extensively in canal and railroad building, and, more recently, in utilities projects such as electricity distribution.

admittedly, these projects ultimately were for the greater good, but not always "public" in their usefulness (or distribution of revenues (and profits)).

the concept of eminent domain has always been with us (egyptian pyramids, great wall of china), but the concept of "just compensation" is a fairly recent development.

 

[nkb]

That was quick.

Since this ruling was decided by the United States Supreme Court, I assume you are referring to an amendment to the United States Constitution. Such an amendment becomes law only after passage by the legislatures of three fourths of the states.

No, I'm talking about an amendment to the Texas constitution. In Texas (may be the same in other states), EVERYTHING is a constitutional amendment, it seems.

An interesting point is that, while the vast majority of Texas lawmakers are behind this amendment, there is some disagreement on whether sports stadiums should be exempt. This may come into play in the near future as the Cowboys are preparing plans for a new stadium (in Texas, football, especially the Cowboys, are public interest).

 

[nkb]

The objections you raise - about not wanting to move, and about how to ensure that you get fair market value - are every bit as applicable when eminent domain is invoked for a public project, which is still allowed and is not at issue. The idea behind eminent domain is that the "greater good" occurs in these projects, even though some individuals may experience inconvenience, disruption, and yes, even financial loss in some cases (although, as Dan points out, the vast majority sell because they want to). Perhaps for this reason you feel that eminent domain is a bad policy in all cases in which it is applied. But it can still be applied for public purposes, even if an amendment passes to prevent its application for private projects.

I understand that this ruling does not affect public interest projects. I was just making an argument that it may not be fair to label all holdouts as greedy, even when it is in the public interest.

In Dallas, we have just recently seen the whole "eminent domain" issue at work, when they finally made a decision (after many, many years) on the path of the George Bush (Sr) Tollway, which is supposed to encircle Dallas. A fair amount of people are losing their houses in the interest of the community, even though a private company will be making the money from the tolls.

As far as resale value of home improvements goes, when I was searching for potential rental properties to buy, it never really seemed to matter too much what upgrades were present. Everything was calculated on dollars per square foot, and compared to similar size houses in the same general area. Upgrades (like hardwood floors, or a new kitchen) seemed like an afterthought. They made the house more appealing, and more likely to sell quickly, but didn't seem to be reflected in a higher sale price compared to a similar house with less amenities.
I'll admit, I didn't get into serious details, because I decided not to pursue it, so I may be mistaken. Maybe the weak real estate market in the area had some effect, I don't know.

Your other points are well taken.

 

[nsxtasy]

As far as resale value of home improvements goes, when I was searching for potential rental properties to buy, it never really seemed to matter too much what upgrades were present. Everything was calculated on dollars per square foot, and compared to similar size houses in the same general area.

Rental properties are similar to single family houses for sale, in terms of improvements adding to market value. Properties which have more/nicer amenities can rent for more, and have a higher market value, as long as they are desirable amenities and consistent with other properties in the area. As a landlord, I can assure you that you can charge higher rent for a nicer house/apartment than one that is not as nice, and the market value of rental properties is a function of their rent (among other things).

 

[DanO]

Taking land for the public good is not new. Is taking land for public road/interstate/utilities a public good?

What if these takings serve the private housing and commercial developments we call urban sprawl?

Land is taken to service these private developments all the time.

Is it worse to take land to serve private development or take land FOR private development? Is there a difference? Which requires less taking?

I expect this is what the Supreme Court was deciding.

DanO

 

[White92]

Along the lines of this whole eminent domain thing. I just found out that they are building an 8 lane highway along the entire west side of the valley here going north and south. The crappy thing is that it will be running right in the middle of my neighborhood. This is a brand new development too. No house is more than 3 maybe 4 years old. I had mine built a little over 2 years ago. The developer told me that the land was going to be a huge park one day with baseball diamonds, soccer fields, etc....
Come to find out that a large chunk of it was really set aside for this highway that has been planned for awhile now. (I'll be calling him asap to see what he has to say for himself )

I'm not sure the exact length of the highway, but depending on the final route it takes farther north of me, they will have to buy and tear down between 200 and 410 houses. I've included a portion of the map showing it going through my neighborhood. It's hard to judge size and distance, but for a reference point, I've put an arrow pointing to my house. My lot size is .11 acre. The blue/green area will be the highway.

 

[Shumdit]

.11 Acre? How does a house fit on that? Did you mean 1.1 acre? We live on 2.5 acres and I feel a little cramped at times. Either way, the highway is a bummer. At least you are not right up against it like some of your neighbors will be. That will kill property values in many cases.

 

[White92]

Ha, I wish it were 1.1 acre. It really is just .11 though. And it only cost me about $50k for that small piece of land. (plus the house on it) I wish I were back in Oklahoma so I could have purchased 4 or 5 acres for that price. You're right though. I am glad that my house doesn't border it like some neighbors. Some friends of ours does and they already have their house up for sale.

 

[Shumdit]

Yes, I bought this land 7 or 8 years ago for less then you paid, and it's worth about 3 times that today (not including the house). At least it's not as crazy as the CA. area. Some people are going to get screwed when the bubble bursts on the market.

 

[queenlives]

good article in today's wsj on this issue. interestingly enough, a number of states are passing legislature to restrict potential misuse of the ruling.

 

[paladin]

that doesnt really make sense... why would they go through the literal middle of a neighborhood when theres so much empty space on either side?

 

[White92]

that doesnt really make sense... why would they go through the literal middle of a neighborhood when theres so much empty space on either side?

Are you referring to my situation? If so, I'm wondering the same thing. There is so much empty space out where I live that is completely undeveloped. It just makes no sense to approve a new sub-division knowing that this highway is planned to go right through it. The oldest house in the subdivision is MAYBE 4 years old. Mine is 2 1/2.

 

[JDM NSX]

this country is run by money. private enterprises are the ones with power and the money that help run this country. This is kinda scary, but compared to other countries, its not that bad. The government should fix this illegal immigrant situation that is screwing our economy up.