UP Standards

4.6.4.1. Taking Plus Damages (the “State Rule”).Many appraisers may be familiar with an alternative taking plus damages (or taking + damages) method for valuing partial acquisitions, also referred to as the state rule. Because the taking plus damages method is apt to “arrive at something else, either more or less, than compensation” under the Fifth Amendment,852 it is generally improper in valuations for federal acquisition purposes, and cannot be used without legal instruction from the acquiring agency or the U.S. Department of Justice.853  The taking plus damages method lacks the “effectiveness of the before and after method in clearly and simply dealing with . . . damages” and benefits in partial acquisitions.854 Moreover, as recognized by the federal courts, the…

4.6.4. Exceptions to the Federal Rule.The federal courts’ universal preference for the before and after method makes clear that departures may be appropriate, if at all, only in “very unique and complex” circumstances.848 “[A]ny other method of arriving at compensation could conceivably arrive at something else, either more or less, than compensation.”849 Nevertheless, some federal courts have accepted valuation methods other than the before and after rule in partial acquisitions where necessary to reach a fair and practical result.850 But in those unusual circumstances, as the Court of Claims warned, “[t]he particular evaluation approach utilized by a party in severance damage situations can sometimes serve to increase the burden it must carry in persuading that speculation and conjecture are not…

4.6.3. Benefits. Federal acquisitions and the projects they serve can also enhance properties’ market value, often raising complicated valuation questions.818 Under federal law, compensation for a partial acquisition must reflect any direct and special benefits to the remainder due to the government project.819 Indirect and general benefits, on the other hand, are not considered because they are enjoyed by the public as a whole rather than arising from an acquisition’s particular impact on a specific property.820 Distinctions between these types of benefits are discussed in more detail below.  The same principles guide the analysis of benefits and damages in valuations for federal acquisitions.821 Just compensation turns on the question, “What has the owner lost? not, What has the taker gained?”822…

4.6.2.3. Non-Compensable (Consequential) Damages.Because the compensability of a particular aspect of damage stems from its treatment in the open market between willing buyers and sellers, losses that are not reflected in sales prices in the private market cannot be considered in federal acquisitions. Applying this principle, federal courts have determined that the following losses are not compensable under the Fifth Amendment: loss of business value or going concern value;783 loss of or damage to goodwill;784 future loss of profits;785 frustration of plans;786 frustration of contract or contractual expectations;787 loss of opportunity or business prospect;788 frustration of an enterprise;789 loss of customers;790 expenses of moving removable fixtures and personal property;791 depreciation in value of furniture and removable equipment;792 increased production or…

4.6.2.2. Necessary Support.Of course, the mere fact of a partial acquisition will not necessarily entitle a landowner to damages.752 It may well be “that while there has been a severance in the legal sense such severance has caused no compensable damage to the market value of the properties not taken.”753  And legally compensable damages can only be considered if proved: as with any element affecting value, damage to the remainder (i.e., diminution in value) can never be assumed but must always be fully supported by the facts of each situation.754 Damage that is “vague and speculative in character” or premised on “possibilities more or less remote” cannot be considered.755 As a result, it is improper to use damage as a…

4.6.2.1. Compensable (Severance) Damages.In the context of the Fifth Amendment, damage is simply “the equivalent for the injury done,” just as compensation, “standing by itself, carries the idea of an equivalent.”749 Yet the concept of compensable damage is often misunderstood, as the Eighth Circuit explained:  It is incorrect to think of “severance damages” as a separate and distinct item of just compensation apart from the difference between the market value of the entire tract immediately before the taking and the market value of the remainder immediately after the taking. In the case of a partial taking, if the “before and after” measure of compensation is properly [applied], there is no occasion . . . to talk about “severance damages” as…

4.6.2. Damage.Just compensation is measured by the owner’s loss, not the government’s gain.737 In partial acquisitions when only part of a larger parcel is acquired, the value of the part acquired is not the sole measure of compensation; the “injury or benefit to the part not taken is also to be considered.”738 If the part not acquired, the landowner’s remainder, is “left in such shape or condition as to be in itself of less value than before, the owner is entitled to additional damages on that account.”739 In legal terms, decreases in the market value of the remainder property for which compensation must be paid are compensable damage and must be considered in valuations for federal acquisitions. Compensable diminution in…

4.6.1.1. Larger Parcel Determination.By definition, a partial acquisition involves property that is some part of a unitary holding (the “whole”),729 commonly called the larger parcel or parent tract.730 In a partial acquisition, “[i]t is often difficult . . . to determine what is a distinct and independent tract”—the whole property, comprising the part acquired and the remainder.731 But this determination of the larger parcel is critical for proper consideration of compensable damages and offsetting benefits.732 As discussed in Section 4.3.3, the key factors in determining the larger parcel are (1) unity of use (i.e., highest and best use), (2) unity of ownership, and (3) physical unity (proximity or contiguity).  Certain aspects of the larger parcel determination merit particular emphasis in…

4.6.1. The Federal Rule: Before and After Methodology.The before and after method of valuation for partial acquisitions is accepted in all federal courts.724 It is often called the federal rule, although it also applies in many (but not all) state jurisdictions.725 A before and after valuation requires careful determination of the larger parcel (or parent tract) at issue— which may differ before and after the acquisition—and proper consideration of damages and benefits to the remainder property due to the government acquisition. Each of these issues will be addressed below, along with limited exceptions to the before and after method.  The before and after method is “particularly advantageous” where the remainder may have been damaged and/or benefitted by the government’s acquisition.726…

4.6. Partial Acquisitions. Just compensation must put a landowner “in the same position monetarily as he would have occupied if his property had not been taken.”711 The landowner “must be made whole but is not entitled to more.”712 Under this principle, compensation for a partial acquisition—when the United States acquires only part of a unitary holding—must reflect not only the property interest acquired, but also any change in the value of the remainder directly caused by the government’s acquisition or planned use of the part acquired.713 As a result, the federal measure of compensation in partial acquisitions is the difference between the value of the landowner’s property before and after the government’s acquisition.714 Accordingly, appraisers must apply the before and…