Eminent Domain Valuation Complexities Involving The Project Influence Rule

Appraising a property being acquired through eminent domain involves a number of unique valuation rules, including highest and best use, larger parcel, date of value, and unique evidentiary restrictions on comparable sales and hypothetical conditions. One of those rules is known as the "project influence rule": an appraiser must disregard any increase or decrease in the property's value due to the project for which the property is being acquired. A recent court of appeal decision, City of Pacifica v. Tong (2024 Cal. App. Unpub. LEXIS 7984*), highlights why this rule is not always easy to apply, and how it can get appraisers in trouble.

Background

City of Pacifica v. Tong involves the City's acquisition of a 1.7-acre property on a bluff overlooking the Pacific Ocean. The property was originally developed with two 20-unit apartment buildings that the owner had previously purchased the property for $6 million. The property had a history of bluff failure and