4.3.2.3. Economic Use.For just compensation purposes, market value must be based on a property’s highest and most profitable use—that is, an economic use.306 The inquiry must be “what is the property worth in the market . . . from its availability for valuable uses.”307 And valuable uses are those which “the prospect of demand for such use affects the market value while the property is privately held.”308 Because “[c]onsiderations that may not reasonably be held to affect market value are excluded[,]”309 noneconomic uses cannot be considered in determining market value for federal acquisitions.310 Federal courts have also rejected valuations that improperly fail to consider an economic use.311 

“The federal concept of market value is intimately related to selling price on the market” in federal case law.312 Indeed, the Supreme Court has recognized that “the ‘market price’ becomes so important a standard of reference” because it reflects the value “arrived at by the haggling of the market . . . .”313 Accordingly, in determining market value for just compensation purposes, a use cannot be considered unless there is competitive demand for that use in the private market.314 This means that a use can be considered as a highest and best use only if that use contributes to the property’s actual market value—that is, to the amount for which the property would sell in the open competitive market.315 As to what constitutes an open competitive market, the Supreme Court held that where prices are “controlled by the supply and demand[, t]hese facts indicate a free market.”316 

Federal courts consistently reject alternative measures of compensation that reflect something other than market value based on an economic use indicated by supply and demand in the open, competitive market.317 Uses based on preservation, conservation or open space, among other priorities, typically lack the competitive supply and demand necessary to indicate a free market and therefore cannot be considered in determining market value for federal acquisitions.318 As the Supreme Court has held for over a century: “That [a] property may have to the public a greater value than its fair market value affords no just criterion for estimating what the owner should receive.”319 

The Supreme Court bluntly rejected the addition of nonmarket, noneconomic considerations to market value in City of New York v. Sage, in which land commissioners improperly awarded compensation “over and above the market value” of the property acquired due to “what they thought a fair proportion of the increase” for its availability and adaptability for a public reservoir. 320 

Upon that point . . . they were wrong . . . . [W]hat the owner is entitled to is the value of the property taken, and that means what it fairly may be believed that a purchaser in fair market conditions would have given for it in fact,—not what a tribunal at a later date may think a purchaser would have been wise to give . . . . Any rise in value before the taking, not caused by the expectation of that event, is to be allowed, but we repeat, it must be a rise in what a purchaser might be expected to give.321

Whether a specific use is economic and therefore appropriate to consider depends on the market, not the use itself.322 For example, in a market in which real estate developers are required to acquire and set aside suitable land to mitigate the impacts of and obtain approvals for real estate development projects, competitive demand in the private market could make mitigation an economic use.323 But in a market lacking private competitive demand—due to insufficient development activity, absence of mitigation requirements, excess supply of suitable mitigation land, or other reasons—mitigation would not be an economic use.324 A recent example can be found in a condemnation involving an existing conservation easement.325 Recognizing “private market value” as the measure of compensation for the easement, the district court excluded all evidence not “relating to market value” from consideration, as “[c]onsiderations that may not reasonably be held to affect market value are excluded.”326 Thus, under federal law, whether mitigation or a similar use is economic (and therefore appropriate to consider) in a given valuation assignment cannot be assumed, but rather must be demonstrated on the specific facts of the property being appraised and the relevant market.327