1.11. Special Considerations in Appraisals for Inverse Condemnations. Unlike direct condemnations and other intentional acquisitions, inverse taking or inverse condemnation claims involve a threshold question of government liability. In filing a direct condemnation, the United States expressly acknowledges the actual or proposed acquisition and its obligation to pay compensation. In the inverse taking claim, on the other hand, the United States may contest the landowner’s claim that a taking occurred for which just compensation must be paid under the Fifth Amendment. Accordingly, in an inverse taking claim, the court must first determine whether a taking of property occurred for which just compensation must be paid. Appraisers may be retained to develop opinions in connection with the liability phase, the compensation phase, or both. If the government’s action resulted in the government’s permanent physical occupation of the land in question, the liability issue is a rather straightforward one.90 However, in the context of a taking by regulation, the federal courts have developed various tests to determine whether a taking has occurred: the character of the government action; the extent to which the regulation interferes with distinct, investment-backed expectations; and the economic impact of the regulation.91 

The economic impact test above involves the valuation of the property in question before and after the government’s action.92 When conducting such an analysis, the appraiser’s application of the larger parcel tests may vary from those applied in the direct acquisition or condemnation93 because of the investment-backed expectations test noted above. Investment-backed expectations are typically considered as of the date upon which the owner acquired the property and in the regulatory environment that existed at that time. But, on the date of the alleged taking, the owner may have sold portions of the property previously acquired. For the court to accurately assess the economic impact of the regulation, it must know how the regulation impacted the owner’s reasonable investment-backed expectations.94 For that reason, it may be necessary for the appraiser to disregard the unity of title test of the larger parcel and to value the entirety of the tract that was originally acquired. Because the tests applied by the courts to determine the question of liability (i.e., whether a compensable taking has occurred) are quite complex, it is essential for the appraiser to confirm with legal counsel the appropriateness of the larger parcel determination before proceeding with the appraisal assignment. 

In providing appraisal services to the government in connection with the liability phase of an inverse condemnation action, it is imperative for both the appraiser and the trial attorney to completely understand what the appraiser’s valuations are intended to measure. For that reason, continual contact and conferencing between the appraiser and trial counsel throughout the development of the appraisal is essential. Government’s trial counsel must determine what is to be measured, while the appraiser determines how to measure it. 

If the court finds that a compensable taking has occurred, the appraiser’s function generally is to develop an opinion of the market value of the affected property before and after the taking, as of the date of the taking, which should be provided to the appraiser by legal counsel. In this valuation phase of the inverse condemnation litigation, the appraiser will generally utilize the same larger parcel tests that are applied in direct acquisitions or condemnations. In other words, the larger parcel used in the liability phase of the trial may be different than the larger parcel used in the valuation phase of the trial. Inverse condemnation actions relating to temporary takings are discussed in Section 1.9.2. 50

90 “[A] permanent physical occupation is a government action of such a unique character that it is a taking without regard to other factors that a court might ordinarily examine.” Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419, 432 (1982).
91 Penn Central Transp. Co. v. City of New York, 438 U.S. 104, 124 (1978).
92 Such action generally relates to the denial of a government permit, such as a permit to fill wetlands.
93 In the context of inverse condemnation cases the courts have sometimes referred to the larger parcel determination as the issue of the denominator. See, e.g., Keystone Bituminous Coal Ass’n v. DeBenedictis, 480 U.S. 470, 497 (1987). For a discussion of the larger parcel tests in direct acquisitions, see Sections 1.2.7.3.1 and 4.3.

94 For example, the owner may have acquired 100 acres, but as of the date of the alleged taking may have sold 75 acres of the tract, leaving an ownership on the date of valuation of only 25 acres.