Digging Your Toes into the Sand with an Appraisal

Argianas & Associates helps guide a client as he prepares for a condemnation

The Argianas & Associates team is proud that our reputation is built on our commitment to produce comprehensive and custom written reports that our clients actually want to pick up and read. With this reputation comes trust that we will guide our clients when they need us most. Recently, we received an opportunity to guide our client as he prepared for the inevitable – his property was being condemned via eminent domain. Our client needed to be a step ahead. He needed to be well-prepared and have a team on his side he could trust to fight for a fair end result. He needed the Argianas & Associates team.

Eminent Domain Breakdown

Eminent domain is one of the four powers that the federal government has over real estate, the others are: taxation, escheat, and police powers. Eminent domain is the right of the federal or local government to take private property for public use. A great example of this is when a two-lane highway is expanded to four lanes. Sometimes homeowners lose a part of their front yard or in more severe cases, a business owner of a commercial building loses his/her parking lot greatly damaging the functional utility of the property. When using the law of eminent domain, the government doesn’t need the owner’s consent, but they must pay just compensation for the property that is being taken.

When the government takes property by eminent domain, it falls under two categories, a “partial taking” or “complete taking”. Both names suggest what they actually mean. In a partial taking, only a portion of the property will be taken for government use. A complete taking means the entire property will be acquired. There are significant consequences in both cases. If a complete taking occurs, then it’s important that property owners are justly compensated for their property. If there is a partial taking, it is important that an appraiser values the property with an understanding of the damages to the remainder of the property. For example, if I own a micro-brewery and the land condemned is where my fermentation tanks were with no room to put them elsewhere, I most likely will suffer significant damages (no beer for anyone!) and be left with a property that is not as functional as before. This, of course, impacts value.

Diving into a proactive strategy

Recently, our team worked on a case involving the condemnation of a house via eminent domain. The owner of a mansion on the shores of Lake Michigan in Northeast, Illinois was preparing for his property to be taken over by the park district under the law of eminent domain. While the park district had not yet moved on the property, the owner was aware that it would be happening soon and wanted to be fully prepared. The property was attractive to the park district because of its location nestled between a park of great public significance and the shorefront.

In addition to being located on the shores of Lake Michigan, the property was also unique in that it was one of a handful sustainably built homes in the village. With a geothermal heating system in the basement and solar panels placed on the exterior, the house was not a typical appraisal in-and-of-itself. The property was appraised for the structure, its unique characteristics, and superb location. Understandably, the property was valued at an amount that was significantly greater than other homes in the area.

Finally and of great procedural importance, Argianas knew the right value definition to use when beginning this appraisal. While this may seem rather simple, as one can imagine Eminent Domain litigation cases can become contentious and an appraisal written under the wrong assumptions of value will be thrown out of court for procedural purposes alone. In Illinois, “Fair Cash Value” (IL Eminent Domain) is explained as follows: Except as to property designated as possessing a special use, the fair cash market value of property in a proceeding in eminent domain shall be the amount of money that a purchaser, willing, but not obligated, to buy the property, would pay to an owner willing, but not obliged, to sell in a voluntary sale. Illinois State Statutes (735 ILCS 30/10-5-60).

floating different ideas

If there is one thing we love, it’s helping our clients understand their properties and the options available to them in new ways. In addition to our appraisal, our team consulted on a few creative solutions for the property owner. One solution was to allow the park district to purchase the property for a large lump sum and allow the current resident to rent the property. Depending on the present value, rent for this type of property would garner approximately $25k a month or $300k a year. In just three years, the cost to rent would total an estimated $900k. This option would be beneficial for the property owner as the rent paid would most likely not total more than the actual value received by the owner at sale. However, it was unlikely the park district would agree to this option.

Another proposed solution would be to sell the property to the park district but to keep it as a life estate for the current resident. By keeping it as a life estate, the current resident would be able to live on the property until he passed. After his passing, the park district would take possession of the property. This solution was also ideal for the property owner because it would allow him to receive money from selling the property while continuing to live in his home.

the sun sets on this assignment

Because of the property owner’s proactive approach, he was fully educated and prepared with a credible report that allowed him to negotiate with the park district and receive just compensation. Although he did not need to call on the Argianas team, he was confident that our experts were ready to take the stand, defend the report and fight to get a fair result.

If you are needing a commercial appraisal report prepared, or have any questions, do not hesitate to give us a call at 630.390.0113 or complete this form. To receive more real estate appraisal resources or receive our original thought pieces, be sure to join our mailing list to receive our e-newsletter.