Just compensation

Just compensation is required to be paid by the Fifth Amendment to the U.S. Constitution (and counterpart state constitutions) when private property is taken (or in some states, damaged then Inverse Condemnation is the relevant description of eminent domain) for public use. For reasons of expedience, courts have been generally using fair market value as the measure of just compensation, reasoning that this is the amount that a willing seller would accept in a voluntary sales transaction and therefore it should also be payable in an involuntary one. However, the U.S. Supreme Court has repeatedly acknowledged that "fair market value" as defined by it falls short of what sellers would demand and receive in voluntary transactions.

Market value is the prevailing, but not exclusive measure of Just or Full Compensation. Market value, many times called Fair Market Value, is defined by appraisers as; the most probable price, in terms of cash or in financing terms similar thereto, that would be paid by a willing buyer to a willing seller, each acting in his or her own best interest, with the property being exposed on the market for an adequate time to attract offers, where the price represents normal consideration for the property sold, that is unaffected by special or creative financing or sale concessions by anyone associated with the sale.

A fundamental and far too often overlooked condition that precedes Market Value is that of Highest and Best Use. This is where a number of Just Compensation, or Full Compensation in states that use this standard, battles are fought. Condemning Authorities commonly find Highest and Best Use scenarios that are far less intensive than what a private property owner has in mind for his property. Many states have a number of laws and cases that favor both Condemning Authorities and private property owners as to Highest and Best Use battles. This is the real battleground in eminent domain cases as it is the on-ramp to how compensation is measured. Many private property owners are in fact unaware of these types of matters and Condemning Authorities are all too willing to take full advantage of what private property owners do not know about. There are many appraisers and attorneys that are also unaware of these types of things, so hiring anyone that does not specialize in this area of practice can cost a property owner dearly.

In unusual cases other measures of compensation can be used. United States v. Pewee Coal Co., 341 U.S. 114 (1951) (increased operational loss of a coal company during its temporary seizure by the government deemed to be the measure of compensation).

The fair market value formulation assumes that the property has been exposed for sale in the market for a reasonable period of time, so that the owner may secure top dollar for either real or personal property by being able to not only pursue but achieve that property's Highest and Best Use. In eminent domain cases, the standard is often not the most probable price, but the highest price obtainable in a voluntary transaction. Since the condemnation deprives the owner of the opportunity to take his or her time to obtain top dollar in the market, the law provides it.

Market value does not include incidental losses (e.g., cost of moving, loss of business goodwill, etc.), but some of these losses are made compensable in part by statutes, such as the federal Uniform Relocation Assistance Act (Code of Federal Regulations 49) and its state counterparts. The judicial denial of compensation for business losses inflicted when a business conducted on the taken land is destroyed by the taking, has been the subject of much controversy and severe criticism by legal commentators. Nonetheless, only one state (Alaska) allows their recovery in all cases and so do a few others upon a showing that it is impossible for the affected business to relocate. Some states allow recovery of business losses by statute.

Likewise, the property owner's attorneys' and appraisers' fees are not included in just compensation. In some states they are recoverable when the owner recovers compensation that exceeds the Condemning Authority's offer or evidence by a specific amount. This of course further limits a private property owner that almost never has the resources or money to fight back with. In California and New York an award of such fees is discretionary with the court.