UP Standards

4.2.3. Objective Market Evidence; Conjectural and Speculative Evidence.For compensation to be “just, not merely to the individual whose property is taken, but to the public which is to pay for it[,]” its measure must be objective.258 The determination of market value must therefore take into account all considerations that might fairly be brought forward and reasonably be given substantial weight in bargaining between buyer and seller.259 But the appraiser must disregard any special value to the owner “who may not want to part with his land because of its special adaptability to his own use” as well as any special value to the government because of the government’s needs or the property’s “peculiar fitness” for the government’s purposes.260 Only “value…

4.2.2.4. Departure from the Unit Rule.Federal courts have repeatedly emphasized that the unit rule is “a ‘carefully guarded’ one and that only in rare and exceptional types of situations [should] departures from it be[ ] permitted.”254 Thus, while the courts recognize the unit rule “manifestly is not without hardships in practical operation,”255 under federal law departure from the unit rule is permitted only in “extraordinary,” “unique,” “rare and compelling” circumstances.256 Any departure from the unit rule requires a legal instruction, as “the determination as to [the unit rule’s] applicability is one made by a court as a matter of law rather than by an appraiser.”257 

4.2.2.3. Allocations and Administrative Payments Under the Uniform Act.Valuations for federal acquisitions must follow the unit rule. But some appraisal assignments may require the appraiser to subsequently allocate the market value of the whole property, once properly determined under the unit rule, for administrative or other purposes. Thus, the appraiser may be directed to apportion the whole property’s value among separate estates or interests for negotiating purposes and/or to comply with agency obligations under the Uniform Act. Such an allocation should be reported in a separate, supplemental report, rather than in the appraisal report of the market value of the whole property.251 Similarly, some assignments may require a determination of the contributory value of buildings, structures, or other improvements that…

4.2.2.2.1. Existing Government Improvements.The presence of government-constructed buildings and improvements on the property on the date of value may significantly affect the analysis of market value. Proper treatment of improvements often turns on the legal effects of a lease, if one exists, as “any valuation should take into account the lease terms covering improvements” of significance to a reasonable buyer.247 But regardless of a contractual agreement, “the equitable principle which condemns unjust enrichment [may] prevent[ ] the value of [government-built] premises becoming a windfall to the owner of the land in the guise of fair compensation.”248 Depending on the facts of the acquisition, the appraiser may need to determine a buyer’s cost to remove such improvements, estimate any contributory value,…

4.2.2.2. Physical Components.Buildings and improvements, timber, crops, sand, gravel, minerals, oil, and so forth, in or upon the property are to be considered to the extent they contribute to the market value of the property as a whole. “[I]t is firmly settled that one does not value the [ ]land as one factor and then value the improvements as another factor and then add the two values to determine market value.”244 Rather, the measure of just compensation is the market value of the entire property— not the total of the money values of the separate items. As a result, in developing an opinion of value for federal acquisitions, the appraiser must consider all the elements that “contribute to make the…

4.2.2.1. Ownership Interests (the Undivided Fee).A property with multiple ownership interests or estates—such as lessor and lessee, life tenant and the holder of the remainder, or mortgagor and mortgagee—must be valued as a whole, embracing all of the rights, estates, and interests of all who may claim, and as if in one ownership.238 For example, in an acquisition of property in fee simple absolute, the property must be appraised as an undivided fee.239 Similarly, in acquisitions of less-than-fee interests, the interests being appraised must be valued as if under single ownership.240 The market value of the whole is later apportioned among “the respective interest holders . . . either by contract or judicial intervention.”241 This is because just compensation is…

4.2.2. The Unit Rule.The market value concept in federal acquisitions generally requires application of the so-called unit rule, a principle developed by the federal courts that dictates what is to be valued for just compensation purposes.233 Under the unit rule, the property being appraised must be valued as a unitary whole and held in single ownership.234 The value of the whole cannot be derived by adding together the separate values of various interests or components.235 As a result, summation or cumulative appraisals are improper under federal law.236 The unit rule relates to ownership interests (estates) in real estate—such as landlord and tenant, or mortgagor and mortgagee—and to various physical components of real estate—such as timber, mineral deposits, farmland, and buildings.237…

4.2.1.4. All Available Economic Uses.Compensation “is to be arrived at upon just consideration of all the uses for which [a property] is suitable.”228 As the Supreme Court stated in Olson v. United States, “[t]he highest and most profitable use for which the property is adaptable and needed or likely to be needed in the reasonably near future is to be considered . . . .”229 That use must be considered “to the full extent that the prospect of demand for such use affects the market value while the property is privately held.”230 As discussed in Section 4.3, in valuations for just compensation purposes, only profitable—i.e., economic—uses can be considered.231 Nonmarket considerations such as value to the public “afford[ ] no…

4.2.1.3. Willing and Reasonably Knowledgeable Buyers and Sellers.Willing and reasonably knowledgeable buyers and sellers are not defined as all-knowing, but rather as having the knowledge possessed by the “typical ‘willing buyer-willing seller’” in the marketplace.220 An arm’s-length transaction cannot be disregarded solely because a buyer or seller lacked “perfect” knowledge.221 For example, the Federal Circuit held that it was appropriate to consider “a relevant market made up of investors who are real but are speculating in whole or major part.”222 And as the same court held in a later appeal, “uncontroverted evidence of an active real estate market compels the conclusion that the typical ‘willing buyer-willing seller’ requirement of fair market value had been met . . . .”223 As…

4.2.1.2. Exposure on the Open, Competitive Market.The federal definition of market value presumes that the property, prior to the date of value, was on the open market for a reasonable length of time to find a buyer who was ready, willing, and able to consummate a purchase on the date of valuation.216 Value is to be determined by what the property “would sell for in the market for cash in the due course of business . . . under ordinary circumstances . . . .”217  In determining just compensation, federal courts have neither defined a “reasonable” length of time nor required that an estimate of market value be linked to a specified exposure time on the open market. For these…