1. introduction: the power of legislature to allocate wealth

Measures of Fair Market Value

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1. Measures of Fair Market Value

  • Need to figure out how much a piece of land is worth = full market value

    • in most jurisdictions for tax reasons property assessed at full market value

    • Full market value is the price a willing buyer will pay to a willing seller

  1. Comparable Sales

        • price other buyers have paid to sellers for similar property

        • most favoured method

  2. Reproduction Costs less Depreciation

        • What it would cost to build something comparable today minus the amount that it has deteriorated since it was built

        • If significant repairs have been made may need to add that price on

  3. Capitalization of Income

        • i.e. Invest $100,000, get 5% interest so your income is $5000

        • $100,000 (value) x .05 (rate of return) = $5000 (income)

        • If you know two of these values you can figure out the 3rd

        • So if we know what income is being earned on the property and what the standard rate of return is for investments (property of this kind) we can figure out the value of the investment

  • Determination of value of land is a question of fact determined by a jury with experts testifying as to their estimate on value

    • Juries decide on what compensation people should get and typically seems to be sympathetic to people who lose their land, but on the other hand they are all taxpayers and money for eminent domain seizures comes from taxation

  • Land has to be valued on the basis for which it was zoned for (Eden Memorial Park)

  • Courts can use any fair and nondiscriminatory method of valuation in order to allow flexibility w/ different types of property (Merrick)

  • If you aren’t satisfied with what the administrative agency has done in assessing your taxes you can appeal  administrative agency receives substantial level of deference from courts because: (Riley)

1. Courts don’t understand it as well

2. Courts don’t want to get involved

3. There are so many cases

4. There are reasons to think the agencies are actually trying to be fair


  • United States v. Eden Memorial Park Ass’n (1965) – Court does not allow the 6.5 acres un-zoned for cemetery purposes to be valued for cemetery purposes, since the landowner was aware of future use for highway purposes

  • Tigar v. Mystic River Bridge Authority (1952) – Tigar has 2 tracts of land he plans to develop as a single unit to be used as a refrigeration plant - Government takes one of the tracts of land to build a bridge. Dispute over how much compensation

  • Lynch v. State Board of Equalization (1985) –Tax collectors don’t want Proposition 13 (which limits tax increases) to apply to oil wells since their value has greatly increased. Oil well owners argue that proposition 13 applies with its full force = oil wells are to be valued at their 1975 value, and since they never get sold and never new construction, except they want to subtract every year for the amount of oil that has been taken out of the ground. Court rejects this = in 10 years most oil wells will be worth zero for tax purposes but in reality will be producing far more oil at a higher value because prices have gone up

        • Rule 468 Compromise - Assessment does not change if pump out same amount of oil even if price goes up. But if a price increase results in new proved reserves increases, there is a new assessment on this new oil reserve but old oil amount keeps the same assessment.

        • These new proved reserves are additions to the property right and should be assessed, yet old reserves assessment are preserved pursuant to Prop 13

        • Court fashions a compromise between competing valuation methods to satisfy both parties.

  • Merrick Holding Corp. v. Board of Assessors of County of Nassau (1978) – Merrick built a new shopping centre and to draw in large stores offered them below market value rent then charged all other stores market value.

        • Court held that the assessor didn’t have to accept the landowner’s estimate of the value of the land as reflected in actual rents = merely had to be fair and nondiscriminatory

        • This case tells us that if someone makes a bad deal and rents out their property cheap, this does not affect the property value and you have to pay taxes as if you were renting it at market rates

  • Riley v. District of Columbia Redevelopment Land Agency (1956/57) – Case deals with just compensation when what would appear to be reliable sales data does not seem fair

        • Riley will get a less than market rate for her house because the debt burden will be discounted  an instruction to the jury on remand

        • There are circumstances where the government really needs to take property, but it should be made sure that compensation is adequate

        • Mrs. Riley is clearly poor and when you think about it this way this case is one of the classic cases we should be worried about of a poor person being deprived of their house

        • Riley bought her house at the high price she did because the market forced her to do so = it is at that market that she should be compensated.

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