Your faithful servant is a man of limited intellectual powers, often amazed by what he learns from his betters. And so, once more we find ourselves amazed after reading a recent post of one of our fellow bloggers, Brad Kuhn who runs the California Eminent Domain blog. Mr. Kuhn purports to tell us why condemnors submit one appraiser’s opinion of value in support of obtaining an order for [pretrial] possession, and then, when trial rolls around, offer a second appraisers’ testimony, in a lower amount. Why would they do that? Good question with a rational, if sneaky answer.
This practice, often known as “lowballing” or “sandbagging,” has nothing to do with fluctuations in market value, as Mr. Kuhn thinks. For one thing, when a condemnor makes a deposit, that freezes the date of value, so market fluctuations from that point on have no effect on valuation. Typically, condemnees withdraw the deposit so they can acquire substitute property to which to move when the subject property is physically taken from them by an OIP or otherwise. So when months later, trial takes place, and time comes to put on real, admissible evidence of value, condemnors can bring in another appraiser who testifies to a value lower than the earlier deposit value, thus putting the condemnee under unfair pressure. If he goes to trial now, he risks a verdict that may be lower than the deposit, which would require him to refund a part of the money he withdrew and probably spent on a replacement property.
This practice is so old that it was cautioned against by the late Dick Huxtable in the 1960 edition of the CEB California Condemnation Practice, CLE book, (§12.24, pp. 243-244) and was repeated in the 1973 edition. (§9.57, at pp. 244-245), as well as the current one. There have even been cases in which condemnors had the chutzpa to try and pull this “sandbagging” routine by using one appraiser who testified to one figure for purposes of fixing the deposit, and the same appraiser trying to use another [lower] figure in trial. County of Contra Costa v. Pinole Point Properties, 27 Cal.App.4th 1105 (1994), and see Community Redevelopment Agency v. World Wide Enterprises, No. B122176 (2000) (opinion vacated when condemnor settled).
In spite of this history, Mr. Kuhn would have it that:
“While some may wonder why the agency’s appraisal at the time of the expert exchange was significantly less than its initial appraisal and offer, this is actually becoming more and more common, especially over the last few years in a declining real estate market. The reason is usually due to the parties’ using a date of value for the eminent domain action that is months (and sometimes over a year) after the completion of the initial appraisal, so as the market continued to dive, so did the impacted property’s value. Also, agencies rarely use the same appraiser for trial that they use for the initial appraisal/offer, so with a new appraiser typically comes a difference in opinion.”
But if history is any guide, condemnors’ motivation is not necessarily so pure. Why would they knowingly use an outdated appraisal to establish a deposit? Isn’t that deposit supposed to be a good faith estimate of the “just compensation” that is constitutionally due? And why did they also do that in the olden days when land values in California were going up? The reasons for condemnors’ value evidence manipulation usually have nothing to do with market conditions; as noted, it’s an unfair way of putting condemnees under pressure — not exactly something that is consistent with “fairness and justice” that the courts tell us is the essence of eminent domain proceedings. And besides, aren’t condemnors required by law to make offers that represent fair market value, which is statutorily defined as the highest value the subject property would bring in a voluntary market transaction?