CACI 3501 Fair Market Value Explained

California Civil Jury Instructions CACI

3501 “Fair Market Value” Explained

Just compensation includes the fair market value of the property as of [insert date of valuation]. Fair market value is the highest price for the property that a willing buyer would have paid in cash to a willing seller, assuming that:

1.There is no pressure on either one to buy or sell; and

2.The buyer and seller know all the uses and purposes for which the property is reasonably capable of being used.

Directions for Use

Do not give this instruction if there is no relevant market for the property. Instead, instruct on the appropriate alternative method of valuation.

The jury determines the fair market value of the property based on the highest and best use for which the property is geographically and economically adaptable. (See San Diego Gas & Electric Co. v. Schmidt (2014) 228 Cal.App.4th 1280, 1288 [175 Cal.Rptr.3d 858].) If the highest and best use is disputed, give CACI No. 3502, “Highest and Best Use” Explained.

Sources and Authority

“Fair Market Value” Defined. Code of Civil Procedure section 1263.320.

Property With No Relevant Market. Evidence Code section 823.

“The measure of compensation in a condemnation case ‘is the fair market value of the property taken.’ ‘The fair market value of the property taken is the highest price on the date of valuation that would be agreed to by a seller, being willing to sell but under no particular or urgent necessity for so doing, nor obliged to sell, and a buyer, being ready, willing, and able to buy but under no particular necessity for so doing, each dealing with the other with full knowledge of all the uses and purposes for which the property is reasonably adaptable and available.’ ‘A jury should consider all those factors, including lawful legislative and administrative restrictions on property, which a buyer would take into consideration in arriving at the fair market value.’ ” (City of Perris v. Stamper (2016) 1 Cal.5th 576, 598−599 [205 Cal.Rptr.3d 797, 376 P.3d 1221].)

“ ‘Market value,’ in turn, traditionally has been defined as ‘the highest price estimated in terms of money which the land would bring if exposed for sale in the open market, with reasonable time allowed in which to find a purchaser, buying with knowledge of all of the uses and purposes to which it was adapted and for which it was capable.’ ” (Klopping v. City of Whittier (1972) 8 Cal.3d 39, 43 [104 Cal.Rptr. 1, 500 P.2d 1345], internal citation omitted.)

“Recognized alternatives to the market data approach to valuation are reproduction or replacement costs less depreciation or obsolescence.” (Redevelopment Agency of the City of Long Beach v. First Christian Church of Long Beach (1983) 140 Cal.App.3d 690, 698 [189 Cal.Rptr. 749], internal citation omitted, disapproved on other grounds in Los Angeles County Metropolitan Transportation Authority v. Continental Development Corp. (1997) 16 Cal.4th 694, 720–721 [66 Cal.Rptr.2d 630, 941 P.2d 809].)

Alternative methods of valuation particularly apply to properties such as schools, churches, cemeteries, parks, and utilities for which there is no relevant market; therefore these properties may be valued on any basis that is just and equitable. (County of San Diego v. Rancho Vista Del Mar, Inc. (1993) 16 Cal.App.4th 1046, 1060 [20 Cal.Rptr.2d 675].)

“However, when there is ‘a market for this property in the private marketplace as demonstrated by the evidence,’ the trial court errs in admitting evidence of a valuation methodology that ignores the developed market for a particular type of property.” (Central Valley Gas Storage, LLC v. Southam (2017) 11 Cal.App.5th 686, 692 [217 Cal.Rptr.3d 715].)

“[T]he fair market value of property taken has not been limited to the value of the property as used at the time of the taking, but has long taken into account the ‘highest and most profitable use to which the property might be put in the reasonable near future, to the extent that the probability of such a prospective use affects the market value.’ ” (City of San Diego v. Neumann (1993) 6 Cal.4th 738, 744 [25 Cal.Rptr.2d 480, 863 P.2d 725], internal citations omitted.)

“In condemnation actions, California courts have long recognized what has been referred to as the ‘appraisal trinity.’ This term encompasses three methods or approaches used by appraisers to determine the fair market value of real estate: (1) the current cost of reproducing (or replacing) the property less depreciation from all sources; (2) the ‘market data’ value as indicated by recent sale of comparable properties; and (3) the ‘income approach,’ or the value of which the property’s net earning power will support based upon the capitalization of net income. In 1965, the state Legislature codified these three approaches in Evidence Code section 815–820. A qualified appraiser in an eminent domain proceeding may use one or more of these valuation techniques to ascertain the fair market value of the condemned property.” (Redevelopment Agency of the City of Long Beach, supra, 140 Cal.App.3d at p. 705, internal citations omitted.)

Secondary Sources

8 Witkin, Summary of California Law (11th ed. 2017) Constitutional Law, § 1368
1 Condemnation Practice in California (Cont.Ed.Bar 3d ed.) §§ 4.1–4.2
4 Nichols on Eminent Domain, Ch. 12, Valuation Generally, §§ 12.01–12.05, Ch. 13, Fair Market Value—Physical Character, § 13.01 (Matthew Bender)
20 California Forms of Pleading and Practice, Ch. 247, Eminent Domain and Inverse Condemnation, § 247.135 (Matthew Bender)