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, taken or damaged). Usually, the government (condemnor) brings an action to take property, but when it fails to do so and pay for the taking, the owner may seek compensation in an action called "inverse condemnation." 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. Fair Market Value is defined by appraisers as the most probable price, in terms of cash that would be paid by a willing buyer to a willing seller, each being fully informed of the property's good and bad features, with the property being exposed on the market for an adequate time to attract offers. But in eminent domain cases value is defined as the highest price obtainable in the open market. That value may not be influenced by factors that affect the market because of the imminence of the eminent domain taking. In other words, the property must be valued as if the project for which it is being taken did not exist — this is known as the "project influence" doctrine.

Since fair market value involves a future, hypothetical transaction (the property's sale has not yet taken place at the time of valuation) fair market value is shown by the opinion of expert appraisers, or the property's owner(s).

A fundamental attribute of property that determines its Market Value is its highest and best use, which is its most profitable legal use. This need not be the property's current use, nor the use(s) for which the property is currently zoned, if it is established that there is a probability of zone change. Highest and best use is often the subject of contentious litigation. Condemning Authorities commonly argue for Highest and Best Uses that are far less intensive than what a private property owner's appraiser has in mind. This is often the real battleground in eminent domain valuation cases.

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Wikipedia