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Tennessee County Municipal Advisory Service

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Establishing Fair Market Value

Reference Number: MTAS-1296
Tennessee Code Annotated
Reviewed Date: September 12, 2017
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The fair market value of the property taken by the condemner must be established as of the date of the taking. [8] Therefore, the enhancement in value or depreciation in value of the property that occurred before the taking in anticipation of the completion of the public improvement may not be considered by the jury. [9] This problem usually is encountered when a public improvement is constructed in stages or is enlarged so as to require additional property. If the property increases in value due to its proximity to the construction of the public improvement, and at a later date the condemner decides to acquire additional land for the expansion of the public improvement, the condemner is required to pay for the enhanced value of the property. [10]

If, on the other hand, the public project from the beginning contemplated the acquisition of several parcels of property but only one was acquired initially, the owners of the remaining tracts are not entitled to benefit from any appreciation in value resulting from construction of the project. [11] This is known as the “scope of the project” rule. The condemner has the burden of proof in establishing that the property in question was within the scope of the project. [12] The condemner need not show that the property was actually specified in the original plans for the project so long as it can be established that during the course of the planning or original construction of the project, it became evident that the property in question would be needed for the project. [13] To determine whether the appreciation in value resulted from the proposed public improvement, the trial court must make a preliminary determination on the scope of the project, which will serve as the basis for the admissibility of comparable sales that might reflect the appreciation. [14]

In establishing the fair market value of the property being taken, the jury may not consider prices previously offered by prospective buyers of the property. [15] The price actually paid several years before the condemnation may also be excluded. [15A] The prices at which the property was previously offered for sale also cannot be considered in determining the fair market value of the property. [16]

Evidence of environmental contamination, as well as the reasonable cost of remediation, is relevant to the issue of valuation and erroneous exclusion of this evidence warrants a new trial. [16A]

All capabilities of the property and all legitimate uses for which it is available and reasonably adapted must be considered in determining the fair market value of the property. [17] See also T.C.A. § 29-17-1004. Therefore the probable imminent rezoning of the property may be considered in determining the capabilities and uses for the property. [18] Present zoning is only one of several factors to be considered in valuing land that is taken. Zoning is not dispositive because zoning changes may be made to reflect the changing needs and circumstances of the community. This same rule applies to deed restrictions. [18A]  Also, the capability of the property to be developed for one or more particular uses may be shown so long as the proposed uses are not unfeasible or remote in likelihood or in time given the circumstances and location of the property, and so long as these uses are not overemphasized. [19]

Speculative value of property in the hands of a future owner cannot be considered. [20] The rental value of the property taken may be considered in estimating the fair market value of the property. [21] Ordinarily, the profits of a business located on the property are not relevant to establish the fair market value of the property, but there are exceptions to this rule in circumstances where the property has special value to the owner and there is no other evidence upon which to establish the fair market value of the property. [22]

The particular use for which the land is most valuable or to which it is presently adapted may be considered by the jury in determining the fair market value of the property, but it may not be the sole basis for that determination. [23] Thus, a witness may not base his or her estimate of the value of the property on its value for a single use such as the “highest and best use.” [24] See also T.C.A. § 29-17-1004. A witness may testify that the property has a fair market value of a certain amount and may explain on direct and cross examination the particular qualities of the property and the specific uses to which the property may be adapted, but the witness cannot testify that the property has a value of a certain amount for “building lot purposes“ or “for the best use.“ [25] This rule is designed to avoid overvaluation of the property by preventing the jury from giving excessive weight to the value of the property to the condemner. [26]

The value of the land to the owner is not ordinarily relevant if there is a market value for the land. [27] A partial exception to this rule may exist when the property has a special value to the owner, without possible like value to others who may acquire it. [28] Such a special or peculiar value to the owner may be taken into consideration in determining the fair market value of the property. [29]

When title to an entire tax parcel is condemned in fee, the total amount of damages may not be less than the latest valuation used by the assessor of property prior to the taking, less any decrease in value since then. The assessor’s valuation may be introduced and admitted into evidence. T.C.A. § 29-16-203(a)(2).

 


Notes:

[8] Love v. Smith, 566 S.W.2d 876 (Tenn. 1978); Nashville Housing Authority v. Cohen, supra; State v. Rascoe, 181 Tenn. 43, 178 S.W.2d 392 (1944); Southern Railway Co. v. Michaels, 126 Tenn. 702, 151 S.W. 53 (1912); State ex rel. Department of Transportation Bureau of Highways v. Brevard, 545 S.W.2d 431 (Tenn. Ct. App. 1976); Memphis Housing Authority v. Mid-South Title Co., supra; State v. Chumbley, 27 Tenn. App. 377, 181 S.W.2d 382 (1944).

[9] Layne v. Speight, 529 S.W.2d 209 (Tenn. 1975); State, Department of Highways v. Urban Estates, Inc., 225 Tenn. 193, 465 S.W.2d 357 (1971); City of Memphis v. Bolton, supra; Woodfolk v. Nashville & Chattanooga Railroad Co., supra; State ex rel. Commissioner, Department of Transportation v. Veglio, 786 S.W.2d 944 (Tenn. Ct. App. 1989); State ex rel. Department of Transportation v. Harvey, 680 S.W.2d 792 (Tenn. Ct. App. 1983); Memphis Housing Authority v. Newton, 484 S.W.2d 896 (Tenn. Ct. App. 1972); State, Department of Highways v. Jennings, 58 Tenn. App. 594, 435 S.W.2d 481 (1968).

[10] Metropolitan Government of Nashville & Davidson County v. Overnite Transportation Co., 919 S.W.2d 598 (Tenn. App. 1995); Layne v. Speight, supra; State ex rel. Commissioner, Department of Transportation v. Veglio, supra; State v. Hodges, 552 S.W.2d 400 (Tenn. Ct. App. 1977).

[11] Layne v. Speight, supra; State ex rel. Department of Transportation v. Harvey, supra; State v. Hodges, supra.

[12] Metro. Govt. of Nashville & Davidson Co. v. Overnite Transportation Co., supra; Layne v. Speight, supra.

[13] Metro. Govt. of Nashville & Davidson Co. v. Overnite Transportation Co., supra; State v. Hodges, supra.

[14] Layne v. Speight, supra; State ex rel. Commissioner, Department of Transportation v. Veglio, supra.

[15] Vaulx v. Tennessee Central Railroad Co., 120 Tenn. 316, 108 S.W. 1142 (1907); Board of Mayor and Aldermen, Town of Milan v. Thomas, 27 Tenn. App. 166, 178 S.W.2d 772 (1943).

[15A] City of Pigeon Forge v. Loveday, 2003 WL 358704 (Tenn. App. 2003).

[16] Lewisburg & Northern Railroad Co. v. Hinds, supra.

[16A] State v. Brandon, 898 S.W.2d 224 (Tenn. App. 1994).

[17] Love v. Smith, supra; Nashville Housing Authority v. Cohen, supra; Davidson County Board of Education v. First American National Bank, supra; McKinney v. City of Nashville, 102 Tenn. 131, 52 S.W. 781 (1899); Alloway v. City of Nashville, supra; State ex rel. Commissioner, Department of Transportation v. Headrick, 667 S.W.2d 70 (Tenn. Ct. App. 1983); State v. Parkes, 557 S.W.2d 504 (Tenn. Ct. App. 1977); State ex rel. Department of Transportation, Bureau of Highways v. Brevard, supra; Memphis Housing Authority v. Mid-South Title Co., supra; Stroud v. State, 38 Tenn. App. 654, 279 S.W.2d 82 (1955).

[18] Nashville Housing Authority v. Cohen, supra; State ex rel. Commissioner, Department of Transportation v. Veglio, supra; Shelby County v. Mid-South Title Co., supra.

[18A] State ex rel. Commissioner of DOT v. Williams, 828 S.W.2d 397 (Tenn. App. 1991); State ex rel. Commissioner of DOT v. Cox, 840 S.W.2d 357 (Tenn. App. 1991).

[19] State ex rel. Commissioner, Department of Transportation v. Veglio, supra; Burchfield v. State, 774 S.W.2d 178 (Tenn. Ct. App. 1988); State v. Parkes, supra.

[20] Southern Railway Co. v. City of Memphis, supra.

[21] Union Railway Co. v. Hunton, 114 Tenn. 609, 88 S.W. 182 (1905); McKinney v. City of Nashville, supra; State v. Parkes, supra; State, Department of Highways and Public Works v. Texaco Inc., 49 Tenn. App. 278, 354 S.W.2d 792 (1961).

[22] Shelby County v. Barden, 527 S.W.2d 124 (Tenn. 1974); Lebanon and Nashville Turnpike Co. v. Creveling, supra. See also County of Greene v. Cooper, Docket No. 130 (Tenn. Ct. App. E.S. February 12, 1990).

[23] State ex rel. Commissioner of DOT v. Cox, 840 S.W.2d 357 (Tenn. App. 1991); Love v. Smith, supra; State v. Parkes, supra; State ex rel. Department of Transportation, Bureau of Highways v. Brevard, supra; Stroud v. State, supra.

[24] Layne v. Speight, supra; Davidson County Board of Education v. First American National Bank, supra; Alloway v. City of Nashville, supra; Memphis Housing Authority v. Mid-South Title Co., supra.

[25] City of Cookeville, Tennessee v. Stiles, 1995 WL 571851 (Tenn. App. 1995); Davidson County Board of Education v. First American National Bank, supra; Memphis Housing Authority v. Mid-South Title Co., supra.

[26] Davidson County Board of Education v. First American National Bank, supra; Memphis Housing Authority v. Mid-South Title Co., supra.

[27] State ex rel. Smith v. Livingston Limestone Co., Inc., 547 S.W.2d 942 (Tenn. 1977).

[28] Evans v. Wheeler, 209 Tenn. 40, 348 S.W.2d 500 (1961); Lebanon and Nashville Turnpike Co. v. Creveling, supra; Southern Railway Co. v. City of Memphis, supra.

[29] Lebanon and Nashville Turnpike Co. v. Creveling, supra; Southern Railway Co. v. City of Memphis, supra; State ex rel. Department of Transportation, Bureau of Highways v. Brevard, supra; County of Greene v. Cooper, supra.

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