DEFINITION of Just Compensation
Just compensation refers to compensation individuals receive when their property gets seized by the government for public use. For example, when the national highway system was constructed in the 1950s, many homeowners had their property seized because the government wanted the land to build the interstate highway system. The just compensation remedy is provided by the Fifth Amendment's takings clause and is usually considered to be fair market value. However, what the government considers just compensation may not be regarded as such by the person whose property is seized. The government’s power to take private property for public use if referred to as “eminent domain.”
BREAKING DOWN Just Compensation
Individuals who lose their home through eminent domain may not consider the fair market value of the property to be just compensation because it does not take into account the time, stress and expense of moving to a new property. Just compensation also fails to account for the loss of neighborhood social networks or the emotional ties the owner may have to the property. (To help determine the value of your home, see: Top 4 Things that Determines a Home’s Value.)
Determining Just Compensation
When determining just compensation, the following issues need thorough consideration:
- Fair Market Value of Land: The price the property owner would receive if they were willing, not forced, to sell can be used to help determine the fair market value of the land. For example, if a landowner decided that they wanted a more significant piece of land and auctioned their existing property, the auction sale price would be considered fair market value.
- Fair Market Value of Land Improvement’s Seized: Land improvements refer to structures that improve the value of taken land. Land improvement may include detached dwellings, barns and separate garages. Intangible land improvements must also be taken into consideration. For instance, land near an area with natural resources may be considered a land improvement.
- Residue Damages: Residue damages to property as a result of eminent domain needs consideration. Residue damages may include the inability to use the best part of the land, any change or shape to the land and the land’s new proximity to public infrastructures, such as roads or utility equipment.
- Benefits: Although less frequent, property owners may benefit from publicly taken land. For example, if part of an owner’s land gets seized for a new service road that allows the property to be subdivided, that benefit can be used to offset the total compensation received.