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 in cases where there is no relevant market for the property. Instead, instruct on the appropriate alternative method of valuation.

Sources and Authority

Code of Civil Procedure section 1263.320 provides:

(a) 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.

(b) The fair market value of property taken for which there is no relevant, comparable market is its value on the date of valuation as determined by any method of valuation that is just and equitable.

" '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].) c "[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 (9th ed. 1988) Constitutional Law, § 1016

1 Condemnation Practice in California (Cont.Ed.Bar 2005) §§ 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, Chapter 247, Eminent Domain (Matthew Bender)

(New September 2003)