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Fair Market Value Compensation: Is this the right standard?

By Ashley Wofford

In my previous post, I gave an overview of ACRE’s most recent eminent domain policy brief by George Mason Professor of Law, Ilya Somin: “Ripe for Reform: Eminent Domain Law in Arkansas.”

The first aspect of Arkansas eminent domain law that Somin points out as having a potential for abuse is fair market value.

Fair market value in Arkansas is defined as “the price a willing buyer would pay a willing seller after considering all factors in the marketplace that influence the price of private real property.” A lot goes into the determination of fair market value: the property’s size, its accessibility, sale history in the surrounding area, its zoning, damages to the land or assets. Somin argues that these characteristics leave out one important factor when deciding the value of compensation: subjective value.

Subjective value is the “value property owners attach to the land above the market value.” For example, the condemnation of a small-business owner’s building, forcing relocation, may cause the loss of local customers or perhaps a church loses members of it’s congregation.  

Somin suggests the simplest approach to this dilemma would be setting a 20-30 percent premium to the fair market value of property that has a high subjective value. This has been applied in other states already. The state of Indiana requires the compensation for the taking of a person’s home be 150% of the fair market value. Though an imperfect measure, this outcome is preferable to chronic undercompensation.

My next post will look into the potential problems in pipeline takings that Somin discusses, particularly whether pipelines are truly “common carriers.”