CACI No. 3501. “Fair Market Value” Explained

Judicial Council of California Civil Jury Instructions (2023 edition)

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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.
New September 2003; Revised June 2015
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)

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