When the government exercises its power of eminent domain to take private property for public use, the U.S. Constitution requires it to provide “just compensation” to the property owner. But what does “just compensation” truly mean, and how is it determined?
The Meaning of Just Compensation
At its core, just compensation is meant to ensure that a property owner is made whole after a taking. The courts have long interpreted this principle to mean that owners should receive the “full and perfect equivalent” of their property in money. However, the practical application of this principle often falls short, with property owners frequently facing losses due to undervaluation, legal fees, and procedural complexities.
The Role of Fair Market Value
The courts typically use “fair market value” as the standard measure of just compensation. This is defined as the price a willing buyer would pay a willing seller in an open market, assuming both parties are fully informed and under no compulsion to act. However, this standard can be problematic in eminent domain cases because:
- Property owners are not “willing sellers” but are forced into selling.
- Some courts have excluded many factors that would normally influence market transactions.
- Unique properties may not have a clear market value, leading to disputes over valuation.
Different Approaches to Compensation
There are two primary rules for calculating compensation when only part of a property is taken:
- The Federal Rule (Before and After Rule) – This approach compares the total property value before the taking with its value afterward. The difference is awarded as compensation.
- The State Rule (Take Plus Damages Rule) – This method calculates the value of the land taken and separately compensates for any damages to the remaining property.
While both methods aim to achieve fairness, inconsistencies can lead to property owners receiving less than what they are owed.
The Hidden Costs of Eminent Domain
A major issue in eminent domain cases is that property owners often bear significant costs beyond the loss of their land. Litigation expenses, expert witness fees, and attorneys’ fees can quickly add up, reducing the actual amount of compensation received.
Some jurisdictions recognize this issue and allow reimbursement for these costs, but many do not. This means that, in practice, just compensation may not fully cover the losses incurred by property owners.
The Need for Reform
To truly uphold the constitutional guarantee of just compensation, reforms should address:
- Ensuring that fair market value includes all relevant factors buyers and sellers consider.
- Providing reimbursement for legal and expert fees when property owners are forced to litigate.
- Recognizing that property owners should not be financially disadvantaged by the government’s actions.
Eminent domain is a powerful tool, but it must be exercised with fairness. Property owners deserve to be made whole—not just in theory, but in reality.
This article has been adapted from its original form, which was presented at the 2025 American Law Institute’s National Eminent Domain and Land Valuation Conference 101 Program. For over 40 years, The ALI-CLE Eminent Domain and Land Valuation Conference has been a premier event for eminent domain practitioners nationwide, offering valuable perspectives on evolving legal trends and litigation strategies.
