Residential Properties Taken Under Eminent Domain: Do Government Appraisers Track Market Values?

Abstract

Local governments often use powers of eminent domain to take residential properties for public use. In such cases the local government will use their appraisers (in-house or independent) to calculate an offer on the property. If the goal of the government is to avoid costly (use of administrative resources) litigation it may have an incentive to over-appraise the residential properties. Such over-valuation would transfer the cost to taxpayers. We compare the appraised value of sixty properties taken through eminent domain in Clark County, Nevada to comparable properties sold in free market transactions. We find evidence of over-appraisal of the properties taken by eminent domain. By valuing individual property characteristics differently from the market, the government over-appraised properties by approximately seventeen percent. We also provide evidence that the government may use simple rules for appraising the properties, whereas the market employs more complex rules.