Landowner view of Condemnation

During 2003, thinking it was a good time to buy a property to suit my own investment needs, I scoured the multiple listing service for an attractive buying opportunity.  On one occasion, I found a property that seemed to be listed below market value.

The property listed was advertised to be a 32-acre site with county road frontage. The price appeared to be too good to be true.

 

Knowing that good opportunities don’t last, I jumped into my car and drove to the site. No “for sale” sign, no indication of what was for sale. I made a mental note of what appeared to be the subject property and contacted the listing broker.

 

He quickly explained why the price seemed low. It was not an independent parcel. The owner was looking for a buyer who would step in to obtain a variance and subdivide his property so that the 32-acre listed parcel could be purchased.

 

Knowing that this was something I might be able to accomplish, I made an offer to purchase the property and set the offer up so that I could buy it without using a lot of my own cash – always an important issue when you’re a real estate broker. Cash flow is usually the biggest problem when you’re self-employed.

 

The property was listed for $325,000. I asked the broker to represent me as my agent and offered $260,000 with a $500 deposit to be increased to $5,000 after a variance for the lot split was approved. The owner would carry 50% of the purchase price at close of escrow and the note, with annual interest only payments at 6% interest, would be due three years after close of escrow.

 

The seller accepted the offer. It turns out there was more history on this property than I knew when I made the offer, but I was satisfied with my opportunity and proceeded to make application for a variance that would allow the property to be split.

 

The unique circumstances surrounding the parcel led to an approval of the lot split. But, it was a lengthy process that took over a year to complete. The issues surrounding the process were quite interesting and make a good story, but this is about what happened next – after the approval.

 

The property I acquired was adjacent to lands owned by a local open-space park district on two sides. During the subdivision process, it entered my mind that the park district was a logical buyer for this parcel and I was surprised that they had not tried to purchase it. After the split was approved, I was even more surprised when the park district approached me with an inquiry. (As it turns out they had attempted to purchase it.)

 

Since I intended to sell the property to make money anyway, I was more than willing to sit down with them to discuss their intentions with hope of selling the property quickly (and for a profit).

 

After a cordial meeting between me, my attorney and park district representatives, I delivered a comparable sale to the park people, via my attorney. The comparable sale was a 20-acre parcel that had sold for $695,000 more than a year before my purchase. I didn’t say exactly what I wanted, but my intent was that $695,000 would be about right.

 

I was shocked when their official response was that they would pay $300,000 and that they would commence condemnation proceedings if I didn’t sell “voluntarily”. They showed me their appraisal in an attempt to back up their offer and were using my purchase price ($260,000) as a key element of it.

 

Needless to say this put a crimp in my long-term goal (selling the property for a profit). My original purchase price of $260,000 was just the beginning of what I had into the property.

 

Between the original offer and when the park district made their offer (about a year and a half), several things had happened. First I had taken on a silent partner who agreed to pay $175,000 for a 50% interest in the property ($350,000 for the whole property) while explaining to him that the property would be worth at least $550,000 once the approval was obtained. The reason I had sold for that price was because I’d covered my original investment (reducing my risk) while retaining the ability to make more money when we made the final sale of the property a couple years down the road and I didn’t have enough cash to continue this lengthy process comfortably.

 

Therefore my partner would take a loss if I accepted the park offer. Not only that, but my investment had grown during the approval process and I’d also drilled and paid for a test well to the tune of about $10,000 before taking on the partner.

 

But, most importantly, the property was worth the $695,000 price supported by my comparable sale.

 

It wasn’t long before I began looking for an attorney who specialized in condemnation cases. I was not surprised to find out that the condemnation attorney would want to be paid 20 to 35% of the amount of the gain I would receive by going to court.

 

For example, I had been offered $300,000 and I hoped that I would win a suit at a value of about $700,000 (I had the advantage of being in the real estate business and being quite certain about what the property was worth). Therefore the attorney would be paid approximately a quarter of the difference or $100,000. (I wonder if the park attorneys were able to make this calculation?)

 

During our fee negotiations, my attorney could see that this was a good opportunity and took a percentage at the lower end of the scale. At 20%, he ended up making the difference between $730,000 and $300,000 or about $86,000. I also paid my appraiser $15,000. As the initiator of this process, the park (tax payers) paid most of the other fees, such as court costs. I don’t know what their (tax payer) total expenses came to, but I’m sure it wasn’t cheap.

 

In May of 2005, the park took possession of the property. I hired my condemnation attorney in July of 2005 and the case was heard in June of 2006. After the jury had spoken, the park paid interest on the unpaid balance of the purchase price at 3% per annum from the date they took possession until I was paid in full.

 

I was upset enough about what I considered to be bullying by the public agency, that I refused their final appraisal price of $625,000 and all their ensuing offers including one for $700,000 a couple days before the trial started.

 

The fact that they had raised their appraisal price from $300,000 to $625,000 (using the same sales data) was an indication to me that they had not been dealing in good faith. And, because my attorney fees would be the same whether or not I went to court, the resulting jury award produced the largest sales net of any selling opportunity afforded me.

 

Although the week of sitting in front of a jury was frustrating, the satisfaction I received by having my day in court outweighed the pain of trial. Having received a public decision by a jury of peers, the information about my case is public information.

 

If I had accepted a settlement, my guess is that the park attorneys would have required me to sign an agreement not to speak about the case, which in my opinion included bullying and hardball by the park after I had made a fair and good faith offer to settle – which would have saved the public a lot of time and money.

 

Not all condemnation cases are so distasteful. In fact I’ve witnessed public agencies that behaved fairly and above board while exercising the power of eminent domain. It’s just a mater of who you’re dealing with, how much money they have and sometimes property history.

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