N.J. Model Civil Jury Charge 9.12

9.12 CONDEMNATION — METHODS OF COMPUTING FAIR

MARKET VALUE (Approved 4/96)

A. Generally

You have already been told that you must determine the fair market value of

the property, valued according to its highest and best use. Unfortunately, the court

cannot provide you with the dollar amount which you must fill in on your verdict

sheet. The parties have each suggested specific methods of placing a dollar value on

this property.

[Insert as appropriate: B. Market Approach; C. Income

Approach; D. Cost Approach].

1

1Where appropriate, evidence of comparable sales is the “most satisfactory proof of value.” State

v. Tp. of S. Hackensack, 65 N.J. 377, 382 (1974).

“We recognize that most often real estate experts use the comparable sales approach. So, too,

where the facts warrant it, other approaches are utilized by real estate experts. The State has asked us

to decide what appraisal method should be used in this case. It is not our function to designate what

method of appraisal should be used — our function is limited to decide in each case whether the

method used is reasonable under the existing circumstances.” State v. Mehlman, 118 N.J. Super .

587, 591 (App. Div. 1972) (Citations omitted).

B. Comparable Sales

When a buyer and a seller negotiate a price for property, they often discuss the prices

similar properties have sold for in the recent past.2 Similarly, appraisers use sales of

similar properties that have taken place at or near the date of value to help arrive at an

opinion of value for the subject property. These similar properties have been referred

to as "comparables." Frequently, ther e are disagreements over whether these

“comparable” sales involved property that is really equivalent to the property whose

price is being negotiated. When each expert witness gave you his or her opinion as to

the fair market value of the property in this case, he or she based that opinion largely

on the prices actually paid in sales of other properties. You must decide the

usefulness of the evidence of each sale in determining the market value of the

property taken in this case. [For example, if an expert based his or her opinion on

prices paid for other properties that you do not think are similar to this property, and

the expert did not properly account for such differences in his or her analysis, his or

2County of Ocean v. Landolfo, 132 N.J. Super. 523 (App. Div. 1975); State v. Speare, 86 N.J.

Super. 565 (App. Div. 1965), certif. den . 45 N.J . 589 (1965). While the court must initially

determine as a matter of law whether proffered sales are comparable enough to be presented to the

jury, the trier of fact determines the weight to be accorded sales which qualify as comparable. Ibid.

at 575. See also Paterson Redevelopment Agency v. Bienstock , 123 N.J. Super. 457 (App. Div.

1973); Moorestown Tp. v. Slack, 85 N.J. Super. 109, 114-15 (App. Div. 1964), certif. den. 43 N.J.

452 (1964); State v. Azzolina Land Corp., 101 N.J. Super. 103 (App. Div. 1968).

her opinion of the fair market value should not be given much weight in your

deliberations.]

Here are some of the questions you may c onsider in deciding if the sale price of

other property is helpful.

1) Is the other property of similar size?

2) Does the other property have a similar location?

3) How close to the date of taking was the other sale?

4) Were both the buyer and seller negotiating freely?

The experts have mentioned other factors to show the similarity or dissimilarity

of other sales.

[Describe these factors here, if applicable.]

It is up to you to sort out the differen ces with what you think a buyer and seller,

freely negotiating at arm's length, would consider in arriving at a sale price for the

property taken in this case. Give the evidence on each of those other sales whatever

weight you think it deserves in determining the market value of this property.

3

3State v. Probasco, 114 N.J. Super. 546, 552 (App. Div. 1970), aff'd 58 N.J. 372 (1971); State v.

Speare, 86 N.J. Super . 565, 575 (App. Div. 1965), certif. den. 45 N.J. 589 (1965); N.J. Turnpike

Auth. v. Herrontown Woods, Inc ., 145 N.J. Super . 279, 283 (App.Div. 1976). See also State v.

Vacation Land, Inc., 92 N.J. Super. 171, 179 (App. Div. 1961).

C. Capitalization of Income

People often buy property as income-pr oducing investments and the property's

income stream is another way of measuri ng a property's fair market value. Another

way to look at it is to see what an investor would pay for a piece of property in order

to get income over time. For instance, suppos e he or she decides to invest in real

estate and knows that he or she could generally expect a seven percent per year return

from such an investment. That means that on an investment of one hundred dollars

he or she could expect to receive income of seven dollars per year. If he or she

invests one hundred thousand dollars, he or she could expect to receive seven

thousand dollars income every year. Suppose he or she is considering the purchase of

a piece of property that provides seven thousand dollars a year in rental income after

all expenses. He or she should be willi ng to pay one hundred thousand dollars for

that property because that is the amount necessary to invest in order to get an annual

income of seven thousand dollars.

The expert witnesses have referred to this way of arriving at the property's

value as the “capitalization of income” formula because it gives you the amount of

money or capital that should be invested to purchase the property in order to receive

the income which the property produces. 4

As you have heard, experts can differ as to [indicate here as appropriate: the

rate of return; the property's potential or anticipated net income on the date of taking,

i.e., the income that could have been expected if the property were available for lease

on the date of value 5]. Experts can even disagree as to the importance of the

capitalization approach in arriving at a fair market value of the property.

[Discuss contentions of parties here]

When you consider evidence concerning the income produced by the property,

you should only consider it as it affects the market value of the property. [Insert name

of property owner(s) here] is not entitled to be paid extra for losing income after the

date of taking, because he or she will be fully compensated for his or her lost income

by receiving the property's fair market value.

4See 4 Nichols, Eminent Domain, 12.312(3), p. 152 (rev. 3d ed. 1075); Jahr , Law of Eminent

Domain, 225-34; State v. Tp. of S. Hackensack , 65 N.J. 377, 382, n. 3 (1974); City of Trenton v.

Lenzner, 16 N.J . 465 (1954). Evidence concerning capitalization of income projected from

hypothetical construction should not be permitted to reach the jury. State v. Mehlman, 118 N.J.

Super. 587 (App. Div. 1972). Capitalization of rental income, however, may be projected from

reasonably-to-be-anticipated rents even though the actual rents reserved are lower. State v. Hudson

Circle Service Center, Inc., 46 N.J. Super. 125, 131-32 (App. Div. 1957).

5Actual income is frequently less important than anticipated future income because actual income

will only measure the value of the leased fee, i.e. the landlord's interest. Economic or anticipated

income will measure all interests. State v. Hudson Circle Service Center, Inc ., 46 N.J.Super. 125

(App.Div.1957).

D. Reproduction Costs

The market value of the property ma y be influenced by the value of the

structures on it. The value of the structure(s) is a factor that may affect market value.

You must determine the value of the land as enhanced by the value of the structures

on it.6 Suppose that the highest and best use of farm land might be to develop it into

residential building lots. In that case, a barn would not enhance the value of the land

at all. In fact, it might even reduce th e value of the land b ecause of the expense

necessary to tear it down so that houses could be constructed.

Suppose, however, that someone intere sted in buying property wants to use it

for a home and the property already has a house on it. It is logical to assume that such

a house would enhance the value of the property; certainly, the buyer would want to

know how much the house itself is worth; that is, the reproduction cost of the building

— how much it would cost to build one like it, less the wear and tear, or depreciation,

the building has suffered.7

6State v. Burnett, 24 N.J . 280, 288-93 (1957). The admission of reproduction cost evidence,

while within the discretion of the trial court, is relatively disfavored where sales prices of

comparable property are available. Ibid. at 293. See also State v. Cooper Alloy, 136 N.J. Super. at

570; N.J. Highway Auth. v. Ackerson, 73 N.J. Super. 183, 185 (App. Div. 1962).

7N.J. Highway Auth. v. Ackerson, 73 N.J. Super. 183, 185 (App. Div. 1962).