Just compensation

Just Compensation is required to be paid by the Fifth Amendment to the U.S. Constitution (and counterpart state constitutions) when private property is taken (or in some states, damaged) for public use. For reasons of expedience, courts have been generally using fair market value as the measure of just compensation, reasoning that this is the amount that a willing seller would accept in a voluntary sales transaction and therefore it should also be payable in an involuntary one. However, the U.S. Supreme Court has repeatedly acknowledged that "fair market value" as defined by it falls short of what sellers would demand and receive in voluntary transactions.

Market value is the prevailing but not exclusive measure of just compensation. In unusual cases other measures of compensation can be used. United States v. Pewee Coal Co., 341 U.S. 114 (1951) (increased operational loss of a coal company during its temporary seizure by the government deemed to be the measure of compensation). Fair market value is defined by appraisers as the most probable price that would be paid by a willing but unpressured buyer to a willing but unpressured seller, both being fully informed as to the property's good and bad attributes, including its highest and best use which may not be the same as the use to which the property is currently being put.

The fair market value formulation assumes that the property has been exposed for sale in the market for a reasonable period of time, so that the owner may secure top dollar for the land. In eminent domain cases, the standard is often not the most probable price, but the highest price obtainable in a voluntary transaction. Since the condemnation deprives the owner of the opportunity to take his or her time to obtain top dollar in the market, the law provides it.

Market value does not include incidental losses (e.g., cost of moving, loss of business goodwill, etc.), but some of these losses are made compensable in part by statutes, such as the federal Uniform Relocation Assistance Act and its state counterparts. The judicial denial of compensation for business losses inflicted when a business conducted on the taken land is destroyed by the taking, has been the subject of much controversy and severe criticism by legal commentators. Nonetheless, only one state (Alaska) allows their recovery in all cases and so do a few others upon a showing that it is impossible for the affected business to relocate. Some states allow recovery of business losses by statute.

Likewise, the property owner's attorneys' and appraisers' fees are not included in just compensation (except in Florida where they are awarded in all cases under the state courts' interpretation of the Florida Constitution). In some states they are recoverable when the owner recovers compensation that exceeds the condemnor's offer or evidence by a specific amount. In California and New York an award of such fees is discretionary with the court.