USPAP to Remain the Sole Standard of Valuation Practice in California for Real Estate Appraisers

Last summer, I wrote about the Appraisal Institute’s controversial effort to promote legislation in California (known as AB 624) that would enable licensed real estate appraisers performing appraisals for non-federally-related transactions to use any nationally or internationally recognized standard of valuation. I commented at the time that it wasn’t difficult to “envision a parade of horribles that might result should appraisers be permitted to identify obscure international standards for an appraisal assignment in order to drive value up or down for a litigant.”

Not surprisingly, there was widespread criticism of AB 624 from other appraisal organizations including: The American Society of Appraisers, the Royal Institute of Chartered Surveyors, and the Appraisal Foundation. Indeed, at the time AB 624 was being considered, a survey of 175 state regulators from over 30 states revealed that not one thought it was a good idea to enforce multiple sets of appraisal standards.

This morning, I learned from the Appraisal Foundation that AB 624 died in committee. The deadline for action on AB 624 was Friday, August 19, and it was not brought forth. AB 624 had already been approved by the State Assembly, so this outcome was far from certain last summer. At a time when the political process is forefront on the minds of many Americans, it’s nice to know that in the case of AB 624, popular and, frankly, reasonable sentiment prevailed.

Is Redevelopment Quietly About to Grow in California?

redevelopmentRedevelopment has quite the lengthy history in California.  Yet it has generally been “All Quiet on the Western Front” since redevelopment agencies were abolished in 2011 as part of Governor Brown’s plan to fix the state’s budget deficit.  Yes, the legislature breathed new life back into redevelopment last year through Community Revitalization and Investment Authorities (CRIAs), but a widespread return seemed unlikely given the safeguards and restrictions put in place — particularly as to what can constitute “blight” (a term which previously could be interpreted so broadly to include nearly anything).  Yet as many predicted, that may have just been the first baby-step to gain approval and re-introduce the broader use of redevelopment in California.

So what’s the current scoop?  Check out Assembly Bill 2492, which is currently circulating in the Legislature.  The bill’s purpose is purportedly to address “unanswered questions about the data sources” that can be used to determine “blight.”  But by tweaking the blight definition, could the bill open the door to the return of widespread use of redevelopment?

There’s a fascinating article by Debra Saunders in the San Francisco Gate, Eminent domain means your home can be their castle, which walks through the history of redevelopment in Oakland — starting back when Governor Brown was mayor.  The history gives some context to where we’re at now, with AB2492 knocking on the doorstep of approval.  Ms. Saunders summarizes the bill as seeking “to expand redevelopment in the worst way.”  She concludes that, in effect, AB2492 “would allow officials to find that an area is blighted if, for example, the median income there is less than 80 percent of the median income either ‘statewide, countywide, or citywide.'”  As explained by Marko Mlikotin of the California Alliance to Protect Private Property Rights, the bill would allow local officials to “cherry-pick the data” and let affluent communities parade as needy.

In other words, if AB2492 is approved, Ms. Saunders concludes that local jurisdictions can pick the statistics that best suit their needs in order to find ways to use redevelopment.  For example, the most wealthy city in California could declare a portion of the city blighted and therefore subject to redevelopment if that portion does not meet 80-percent of the median income of the rest of the city — even if that portion of the city is otherwise more affluent than the rest of the county or state.  Perhaps it allows blight to once again become subjective.

We’ll continue to follow AB2492, and will report on whether it is ultimately approved.

How to Negotiate a Right of Entry After Property Reserve

Last month, the California Supreme Court’s decision in Property Reserve v. Superior Court provided long-awaited certainty for public agencies after a court of appeal determined the often-used “right of entry” statutes failed to provide adequate Constitutional protection for pre-acquisition investigations and testing.  In summary, the Supreme Court held the right of entry process constitutional, with one reform:  the property owner is entitled to a jury trial on the amount of compensation.  For a full analysis, see our e-alert here.

The decision preserves a significant tool for public agencies to keep their projects on schedule and comply with the environmental laws that govern their approval. The government cannot acquire property for its project until it has received environmental clearance.  But to receive environmental clearance the agency must investigate project impacts.  And to investigate projects impact, the agency must enter property.  That is simple enough where the owner agrees, but often property owners are reluctant to have the government enter their property, especially to do invasive testing and inspections.

Now that Property Reserve has spotlighted the right-of-entry procedures, agencies may find themselves facing owners who are more knowledgeable about the process, and in particular the ability to force the agency to the time and expense of a jury trial on compensation.  If nothing else, Property Reserve may give owners leverage to negotiate with agencies over terms and, of course, money.  Negotiating a right-of-entry agreement will be even more important.

Pre-planning for rights of entry will go a long way and it is crucial to have a written document that provides certainty. And even if voluntary, rights of entry should comply with statutory requirements.  For example, advance notice is required in California and should be included in a right of entry agreement.  Advanced notice protects both parties involved by giving the agency and the owner certainty of when the right of entry will take place.

A right of entry agreement should also contain specific and certain parameters for the scope of work. At a minimum, the agreement should set out the purpose of the entry, whether entry is needed to conduct visual inspections, photographic documentation, and /or environmental testing.  Agencies should try to be as specific as possible, without overly restricting the ability to get the information they need.  Remember, compensation for the entry may be determined by a jury.  The broader the scope of work, the more compensation may be owed to the property owner.

Other details to include are:

  • Who may enter the property?
  • What is the time and place of the entry?
  • How many entries are allowed?
  • Where is the access point?
  • Must the agency restore the premises after the right of entry?
  • How much compensation is owed?
  • Indemnity and / or insurance provisions?

After Property Reserve, a property owner may seek a jury determination of the amount of compensation.  It is in the best interest of the agency (and potentially the property owner) to finalize the amount of compensation in a right of entry agreement to avoid having to argue compensation before a jury trial.

Judge Should Consider Constitutionality of a Dedication Requirement, Not the Jury

Every year or so, a new appellate court decision comes out addressing the proper role of the judge versus the jury on some certain eminent domain issue. Most recently, a trial court, appellate court and the California Supreme Court all grappled with this question:  Does the judge determine whether a dedication requirement is constitutional, or does the jury?  Yesterday, the Supreme Court issued its decision in City of Perris v. Stamper, No. S213468 (Aug. 15, 2016) holding that it is the role of the judge to determine whether a dedication requirement is constitutional.  The Court also answered a second question, whether the project effect rule (or project influence rule) applies to dedication requirements.  The Court held that, while it depends on the timing and circumstances, a dedication requirement can be a project effect to be considered when determining just compensation.  Below is a short summary of the ruling and a longer, more detailed discussion will follow in our upcoming e-alert.


The property owned by the Stampers was vacant land zoned to allow light industrial development. In 2005, the City of Perris amended its general plan and revised circulation elements in the plan to allow for certain truck routes.  Then in 2009, City sought to acquire a strip of the Stamper property for a street realignment project to accommodate one of the truck routes, bisecting the property.  The City valued the vacant property sought as undevelopable agricultural land because it would not have approved any development of the property unless the Stampers dedicated the property needed for the street realignment to the City, and the property should be valued on that basis.  The Stampers argued that dedication requirement should not be considered in determining compensation because it was not reasonably probably the City would impose the requirement, and even if it did, it would be unconstitutional.

The trial court held that it was reasonably likely that the dedication requirement would have been imposed, and that the dedication requirement would have been constitutional. Though the Stampers argued that both issues should have been determined by a jury, because they directly relate to compensation, the conclusions were reached by the judge.  The Stampers also argued that the dedication requirement was a “project impact” and thus should not have been taken into account in valuing the property.  The Court of Appeal reversed, holding that the jury should have considered the dedication requirement issues but disagreed with the Stampers by holding that the dedication requirement was not a project impact because it existed independent of any specific project.

Supreme Court Ruling

The Supreme Court held that it is for the judge to decide whether a dedication requirement is constitutional. The judge must consider whether the dedication requirement has an “essential nexus” to the public purpose for denying any application to develop the property, as set forth in Nollan v. Cal. Coastal Comm. (1987) 483 U.S. 825, and whether the dedication requirement is “roughly proportional” to the impact of the proposed development, as set forth in Dolan v. City of Tigard (1994) 512 U.S. 374.  The Court found that these inquiries are mixed questions of law and fact, but are predominantly legal issues that must be determined before considering whether the dedication would have been imposed, and the judge should make the decision.

The Court also held that the Porterville doctrine, whereby the partial acquisition of vacant property that would have been subject to a lawful dedication requirement should be valued as undeveloped rather than highest and best use, is not applicable in “situations where it was probable at the time the dedication requirement was put into place that the property designated for public use was to be included in the project to which the property is being condemned.”  The Court further held that a dedication requirement can be a project effect and the applicability of the project effect rule is to be determined by the judge because it is a preliminary question of fact.

The case was remanded to the trial court to analyze whether the acquisition of the property was probable when the dedication requirement was put into place and whether the dedication requirement is constitutional.


At the end of the day, it appears both the City and the Stampers won. But of the issues addressed by the Court, it seems the more important ruling is the one regarding project effect, and the Court’s establishing new law on when a dedication requirement should and should not be taken into account when determining just compensation.  However, I think its application will be messy and complicated (and expensive) because a public agency may have to present evidence on the timing of imposing dedication requirements, the decision-making that went into the imposition and essentially prove that the purpose of the dedication is not to avoid paying just compensation.  I anticipate this will cause more than a few headaches.

Most interestingly, though the Court stated it was not asked to determine whether the dedication requirement was constitutional, both the majority opinion and the dissenting opinion seemed to imply that requiring a property owner to dedicate 20% of its property right through the middle of the parcel would not pass muster.   The trial court is left to make that decision, and presumably, the hint will be taken.


New Alternative for Widening 55 Freeway Reduces Right-of-Way Impacts

For years, we’ve been working with our public agency clients during the environmental and design-phase to minimize right-of-way impacts with new infrastructure projects.  Yet for many agencies, property acquisitions are an afterthought, as the costs of construction and environmental impacts headline agencies’ concerns.  That thought process is slowly beginning to change, as agencies are starting to recognize that right-of-way acquisition can significantly delay projects, resulting in construction delay claims, change orders, loss of project funding, and in extreme cases, prevent the project from being built.  Moreover, acquiring private property is a sensitive subject and is one many Board members would prefer to avoid if possible.

As an example of this paradigm shift, an article from the Orange County Register, New alternative for widening 55 freeway reduces right-of-way impact, demonstrates the new focus on minimizing property acquisitions and the benefits such planning can provide.  The article reports that OCTA has decided to move forward with a new build option for the 55 freeway widening which would minimize property acquisitions by reducing the standard shoulder and lane widths.  OCTA board member Lisa Bartlett called the new alternative “genius” for creating additional traffic flow without taking away too much right-of-way:

I really think this is a much better project. We get one shot in this corridor to make improvements for greater throughput.  Construction on the project will be done in one time, not in multiple years in multiple projects.”

While other alternatives exist and are still being evaluated, we should be encouraged that agencies such as OCTA are looking more closely at right of way impacts along with the other major project issues they face during the environmental review and design phases.   Indeed, looking for alternatives to minimize property acquisitions could lead to significant savings and also assist in keeping projects on schedule.  While not all such efforts will lead to any actual decrease in right of way impacts — environmental concerns and construction costs will also continue to be drivers in the design process — we nonetheless hope that in the future, more agencies will focus additional attention on right of way impacts early in the planning process.

The Olympics’ Secret Use of Eminent Domain

Olympic SymbolIt’s an exciting time with the Olympics taking place in Rio De Janeiro.  But what takes place before the Olympics ever gets off the ground involves years of planning, lobbying, and infrastructure development.  That development often requires use of eminent domain.  And in countries without due process and constitutional rights to just compensation, the condemnation process is an ugly endeavor for those impacted.

In Rio, for example, KUSA reports in its article, Rio de Janeiro villages uprooted for Olympics, that leading up to the games, eminent domain was often used “without warning and usually without any compensation.”  In one village, owners spray painted a sign that reads “not all of us have a price.”  The owners say they don’t blame the Olympics, but instead their own government; twenty of the families have hired a lawyer to fight the Olympic take-over.  The government has responded by stating that the Olympic games and infrastructure are for the greater good, as it will benefit Brazil’s economy in the long-run.

The story in Rio is not new; the same thing happened on Sochi, Russia, where families who had modest cottages along the beaches of the Black Sea were forced out for the Olympic park.  That park was a ghost town three weeks after the closing ceremony.

Perhaps the worst example was in Beijing, where 1.5 million residents were displaced by eminent domain, and one individual burned himself to death after being forcibly evicted from his home to make way for the 2008 Olympic Games.  The Geneva-based Centre on Housing Rights and Evictions said residents were often forced from their homes with little notice and little compensation.  “In Beijing, and in China more generally, the process of demolition and eviction is characterized by arbitrariness and lack of due process,” the group said in a report.

Yet not all Olympic locations have seen such unfortunate measures.  In London, the story was different, as the Olympic committee took an industrial area that was a Superfund site and cleaned it up, then built it up.  It is now apartments and shops.  I’ve also traveled many times to Whistler, the home of the 2010 winter Olympics, and I’ve witnessed the thriving community which was helped by the incredible infrastructure improvements to the area.

So while we enjoy watching the Olympics, keep in mind the individuals who have lost their property, and be thankful for the constitutional protections that exist in the United States when it comes to eminent domain.

Two Decisions out of San Diego Remind Us to Follow the Rules

We don’t often see multiple takings-related cases in one week, but last week we saw three.  The California Supreme Court’s decision in Property Reserve was obviously the most important, but the Fourth Appellate District Court of Appeal in San Diego also issued two decisions in the same week.  Although both of these opinions are unpublished and cannot be cited, they act as a reminder for property owners to be mindful of some basic principles of eminent domain law.

The first case, SANDAG v. Vanta, addresses some of the limits on the principle of “just compensation” and, in particular, the proper determination of damages to the owner’s remaining property (“severance damages.”)  The agency sought to acquire about one-fifth of the owner’s property, including all of the area available for legal access to the abutting street.  The agency also offered to provide a “replacement easement” over adjoining property to provide access to the owner’s property.  Vanta claimed that when he decided to develop the access, it would be more expensive to develop access on the replacement easement than on the area taken by the agency.  His  expert  added this increased “cost to cure” a part of the property’s  severance damages, which already included the diminution in value of the remaining property. Before trial the agency moved to exclude evidence of the alleged cost to develop access, arguing that the owner was not entitled to both the diminution in value and the costs to cure.  The trial court agreed and excluded the evidence.  The Court of Appeal affirmed, noting that the owner did not have any evidence that it had plans to develop the access area in the before condition which meant any increased costs were purely  speculative.  The Court also analyzed the propriety of claiming both diminution in value and cost to cure:

In short the cost to cure is a proper measure of severance damages ‘only when it is not greater than the decrease in the market value of the property if left as it stood.’…Vanta was not entitled to recover both the diminution in value of the remaining property and the cost of ‘curing’ his loss of direct access…by developing access [] over the replacement easement; he was entitled to recover one or the other, whichever was less.

The Vanta opinion reminds us that not every possible damage is compensable in an eminent domain action.  Future harm (such as increased costs of development) must be more than a remote possibility.

The same Court of Appeal also issued another opinion in SDMU LLP v. County of San Diego.  This inverse condemnation case involved a development project that had initially been approved in 1990.  The project then went through a series of stops and starts, with issues arising regarding the completion of off-site improvements and related payments.  During that time, the developer and the County had entered various agreements.  One agreement obligated the developer to make payments as homes in the Lakeview portion of the project were completed.  When the contractor stopped work on the improvements, the County began withholding building permits for the Mountaintop portion of the development.  Apparently, the Lakeview and Mountaintop portions were being managed by their respective entities, who were both related to the developer.  The Lakeview and Mountaintop companies brought inverse condemnation actions against the County, challenging the payments for off-site improvements and the withholding of building permits.

The trial court dismissed both of the actions on a threshold consideration.  To state a claim for inverse condemnation, a plaintiff must show that it lost property and/or money.  Here, the payments for the offsite improvements were the developer’s obligation, not the obligation of the Lakeview company.  So if anyone had a right to challenge the payments made to the County, it was the developer, not Lakeview.  Similarly, The Mountaintop company claimed that it should not have its building permits conditioned on completion of the offsite improvements.  The Court found that the conditions did not require Mountaintop to convey any property (i.e., a dedication) or pay any money to the County (i.e., an exaction) and therefore Mountaintop had not lost any compensable property right.  As with Lakeview, had the developer challenged the obligation to construct the improvements, it could have potentially stated a claim.

The Mountaintop discussion is more interesting to me.  On these facts, the opinion makes sense.  The entities are related and it is all the same project.  The developer should not be able to get around its obligations by having a related entity seek the actual permits.  But looked at more broadly, the Court’s reasoning suggests that an agency can place any number of conditions on permits and approvals as long as the applicant is not required to actually pay any money or convey property (but someone else must).  In any event, the decision should make property owners think carefully over who is the proper party to bring a challenge to a regulation.  It may not always be the one you think.

California’s Precondemnation Right of Entry Statutes Upheld — With a Slight Judicial Tweak

For the last two-plus years, we have been waiting for guidance from the California Supreme Court on whether public agencies could utilize the statutory “right of entry” procedure to gain access to private property to conduct investigations and testing. Such activities are routinely part of the environmental approval process for public works projects, and if agencies are forced to go through a regular condemnation proceeding, projects could be delayed for many months or even years.  Today, the Supreme Court issued its decision in Property Reserve v. Superior Court, holding the right of entry process constitutional, with one reform — which the Court modified on its own by providing for a jury trial on the amount of just compensation.  Below is a short summary of the 73-page opinion; be on the lookout for a more detailed e-alert.

Property Reserve Background & California’s Right of Entry Procedure

The California Department of Water Resources sought to conduct environmental and geological studies and testing on more than 150 privately owned parcels of land that the state, in the future, might seek to acquire for the Sacramento-San Joaquin Delta twin tunnels project. The Department filed petitions to enter the properties and undertake studies and testing to determine the suitability of each property and to comply with environmental laws for the project.

By way of background, California’s right of entry statutes provide that a public agency may enter upon property “to make photographs, studies, surveys, examinations, tests, soundings, borings, samplings, or appraisals or to engage in similar activities reasonably related to acquisition or use of the property for that use.” (Code Civ. Proc., sec. 1245.010.)  In order to secure such entry, the agency must obtain the owner’s consent or obtain an order from the court.  If the agency is required to petition the court for approval, the court may determine (i) the nature and scope of the activities reasonably necessary, and (ii) the amount the agency must deposit as the probable amount of compensation for the entry.  If the agency causes damage or substantial interference with possession and use of the property, the owner may recover for such damage in a civil action or by application to the court.

The trial court permitted some investigations but not others, particularly finding that the requested geologic testing (which involved drilling and re-filling deep holes) required a classic condemnation action. On appeal, the Court restricted the proposed precondemnation testing even further, effectively finding that almost all precondemnation rights of entry constituted a taking requiring a condemnation action.  After making its way through the trial court and the Court of Appeal, the importance of the decision garnered enough attention to peak the Supreme Court’s interest.  The California Supreme Court reversed, holding that the right of entry procedure is constitutional once it is reformed to provide the right to a jury trial, which the Court revised on its own initiative.

Supreme Court’s Findings

The Supreme Court starts by initially concluding that the right of entry process and its broad scope of allowed activities covers the testing and investigations the Department proposed to undertake. The Court explained that the Legislature established the right of entry statutes to provide a mechanism to meet the unquestioned need for precondemnation entry and testing while avoiding the ill-advised and premature condemnation of private property.  The question, then, became whether the right of entry procedures conflict with the takings clause.

The Court explained that the right of entry procedure requires (i) the institution of a legal proceeding, (ii) a limitation on the entry to only those activities reasonably necessary to accomplish the investigation, (iii) a deposit into court the probable amount of compensation, and (iv) a process to obtain additional compensation for any losses. With the exception of a jury determination on compensation, there was no conflict with the takings clause.  Instead, the statutes simply provide the benefit of a more expeditious and streamlined procedure for obtaining recovery for any damage that may result from entry and testing activities.

In order to address the missing element of a jury determination on value, the Court concluded that the appropriate remedy “is to reform the precondemnation entry statutes so as to afford the property owner the option of obtaining a jury trial on damages . . . .” The Court reformed the statute accordingly.


The decision is a significant victory for public agencies. Such rights of entry are a necessary component to keep public projects on schedule while still complying with the maze of environmental laws that govern their approval.  Property owners are also now afforded their day in court — before a jury — should there be a disagreement about compensation; that day will just be on an expedited basis.  Stay tuned for a more detailed analysis.

Can Technology Preserve Government Rights of Entry?

As we await the California Supreme Court’s decision in the Property Reserve case (see related posts here and here), many government agencies are faced with the question of what they will do if the justices deem the current right of entry procedures unconstitutional.  Perhaps technology can come to the rescue.

Many in the real estate industry are embracing technology and drones in particular.  The article “Here’s How Drones Will Impact Real Estate Listings” discusses how drone photography will play a significant role in marketing, appraisals and inspections.  Perhaps not surprisingly, appraisers in particular are among the first to incorporate drones in their work.  According to the Forsythe Appraisals article “A View from the Clouds: The Appraisal Industry and Drones:”

Drones provide unique perspectives on properties, giving appraisers more information to use for a credible appraisal report.

So can drones or other devices eliminate the need for rights of entry?  Perhaps. It is easy to see how drone photography can assist with visual inspections, but what about the environment below the surface?   The scientists are on it.  NASA and JPL are working on an airborne water quality sensor, which can be used to monitor water clarity, turbidity and chlorophyll concentrations, all without taking physical samples.  And there are several studies that explore how remote sensing can be used on land, including urban areas.  The work appears to be largely academic so far, but no doubt practical applications will not be too far away.  (For those who’d like to “geek out” on this stuff, you can read these academic papers from the US National Library of Medicine, the University of Nottingham, and Denmark.)  Even if this type of sensing does not eliminate the need for physical inspections, there is certainly the potential for less invasive testing, which was a huge issue in Property Reserve.

Government May Use Eminent Domain to Save Mobile Home Park from Closure

Santa Clara County, the City of Palo Alto, and the local Housing Authority have come together to acquire the Buena Vista mobile home park from its current owner, the Jisser family, in an effort to save the mobile home park from closure. According to the Silicon Valley Business Journal, the mobile home park contains the homes of 400 or so mostly low-income residents.  The Jisser family has been trying to close the mobile home park since 2012 to prepare for future redevelopment of the site.  If the Jisser family refuses the government’s latest offer to purchase the mobile home park, the trio of government entities may use the power of eminent domain to acquire it.  Supervisor Joe Simitian said “the Housing Authority is the one governmental entity in Santa Clara County that is actually responsible for creating and providing affordable housing . . . and they can use all the tools and resources at their disposal (including the power of eminent domain) to move forward with funding, acquiring, improving and preserving the Park as affordable housing in perpetuity.”

Before the dissolution of redevelopment agencies in California, private property had been acquired by the government for private redevelopment and revitalization. However, today, eminent domain is mostly used to acquire property for public works projects, such as transportation projects and public utilities.  Using eminent domain to acquire the mobile park home for continued use as a mobile park by private citizens may bring criticisms from private property-rights activists.  The Pacific Legal Foundation represents the Jisser family and has called the proposal to use eminent domain “outrageous” and “a shockingly immoral and unconstitutional threat.”  The government agencies will argue that keeping the affordable housing for the many low-income residents is a public use for which eminent domain may be used.  The President of the Buena Vista Residents’ Association said in a news release about the potential acquisition:  “We’re encouraged, excited, and thankful for everyone involved for coming up with a plan to preserve the Park and help the 400 Buena Vista Residents stay in Palo Alto.”

If this case does go to eminent domain, the owner of the property will most likely challenge the government’s right to take the property and the public use of the property. We will keep an eye out on this interesting case over the Buena Vista mobile home park and provide updates.