The current housing market still strongly favors sellers. Here’s what to consider if you’re weighing a sale.
What is eminent domain?
Eminent domain is the power of a state or its local entities to take over private property for public use. It’s commonly used when the government is trying to build something like a road and needs the land owned by a private individual to complete the project. In theory, the individual will receive “just compensation,” but property owners who find this inadequate or unfair may defend their rights to the property in court.
In the United States, one of the most common examples of eminent domain is when the government is trying to build a road and the road’s path is obstructed by private property. Other examples include municipal buildings, public schools, or parks. Sometimes there’s simply no other place to put the public property. In other cases, the government has public safety in mind, and it may take over land in order to condemn the buildings on it.
Eminent domain is most often used by local and state governments, and the law is almost always the same. The government appraises the property and determines its fair market value, usually by comparing the value of nearby houses or calculating how much it’ll cost construct a new one. In exchange for a payout, the government takes over ownership. That helps explain why sports stadiums are often built in lower-income neighborhoods: the “just compensation” is often much lower when eminent domain is exercised there.
If the property owner doesn’t agree with the value, she can hire their own appraiser, or appeal in court, where a jury will decide the actual value of the property.
The origins of the principle are in the Fifth Amendment, which reads, “private property [shall not] be taken for public use, without just compensation.” A 2005 Supreme Court decision broadened the scope of eminent domain so that occasionally the property of one private owner can be transferred to another private owner if it’s in the interest of economic development, and as a result many states enacted laws restricting the use of eminent domain for that purpose.
Still, it’s not uncommon for private entities to benefit from eminent domain, if, for example, they acquire the property with the promise of restoring a blighted area or need it to build a gas pipeline.
Get the most out of your home’s value with a home equity line of credit. Bankrate can help you choose the best one.
Eminent domain example
In the early 1990s, a hotel developer named Donald Trump tried to compel a woman in New Jersey to sell her home, where she’d lived for more than 30 years. He wanted to build a parking lot for limousines, but she refused to sell, so he turned to a government agency, which asserted eminent domain. The woman was able to prove in court that the eminent domain would only serve to benefit the hotel developer because there was nothing stopping him from further developing his private property.