City of Harlingen v. Estate of Sharboneau
2001 Tex. LEXIS 47, 44 Tex. Sup. Ct. J. 747, 48 S.W.3d 177 (2001)
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Rule of Law:
A valuation method for condemned undeveloped land based on the projected retail value of hypothetical subdivided lots is generally inadmissible as evidence of fair market value because it is speculative and fails to account for the risks and competition inherent in the real estate market.
Facts:
- Between 1972 and 1979, Lois Sharboneau purchased five adjoining parcels of land, forming a single 9.85-acre tract.
- The tract of land was undeveloped and zoned as open land.
- The parties stipulated that the highest and best use for the condemned property was as a residential subdivision.
- In 1996, the City of Harlingen condemned the entire tract to expand an adjacent city park.
Procedural Posture:
- The City of Harlingen initiated condemnation proceedings against Lois Sharboneau's property.
- Special commissioners appointed under state law assessed the property's value at $98,500.
- Sharboneau, dissatisfied with the award, appealed to the statutory county court, the trial court of first instance.
- Following a bench trial where Sharboneau's expert testimony was admitted over the City's objections, the trial court awarded Sharboneau $232,000.
- The City of Harlingen, as appellant, appealed the judgment to the intermediate court of appeals.
- The court of appeals affirmed the trial court's judgment.
- The City of Harlingen, as appellant, sought and was granted review by the Supreme Court of Texas.
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Issue:
Does the subdivision development method of appraisal, which values undeveloped land based on the projected sales of hypothetical subdivided lots minus development costs, constitute admissible evidence to prove the fair market value of a condemned tract?
Opinions:
Majority - Chief Justice Phillips
No. The subdivision development method of appraisal is not admissible evidence of fair market value in this case because the specific analysis presented was speculative and unreliable. The goal of a condemnation appraisal is to determine fair market value, defined as the price a willing buyer would pay a willing seller. While traditional methods like comparable sales, cost, and income are accepted, the subdivision development method is distinct and problematic. The expert's analysis here involved numerous assumptions about lot prices, sales timelines, and development costs, failing to account for real-world marketplace risks such as competition, economic downturns, or development failures. It calculated what a developer could afford to pay in a best-case scenario, not what a developer would actually pay in a competitive market. Just compensation does not require the government to pay for potential future profits or eliminate the risks a landowner would face in developing the property.
Concurring - Justice Baker
No. Evidence based on the subdivision development method is inadmissible, but it should be under a per se rule, not the majority's more nuanced approach. For over a century, Texas law, established in cases like State v. Willey, has held that valuing a raw tract of land by showing the hypothetical price of nonexistent lots is too speculative and involves comparing dissimilar properties (raw land vs. finished lots). The majority's decision to leave the door open for this method in future cases departs from this clear precedent. The method is fundamentally flawed because its premise—using individual lot sales to value unsubdivided acreage—is irrelevant to the land's market value at the time of the condemnation.
Analysis:
This decision reinforces the judiciary's preference for traditional, market-based valuation methods, particularly comparable sales, in eminent domain cases involving undeveloped land. By rejecting a speculative, forward-looking valuation, the court prevents landowners from claiming the potential future profits of a successful development project. While the majority does not create a per se ban on the subdivision development method, it establishes a high threshold for admissibility, requiring any such analysis to be grounded in marketplace realities and risks, not just hypothetical best-case scenarios. The concurrence highlights a deep jurisprudential tension, arguing the majority's nuanced approach unnecessarily complicates a long-standing rule that should have barred the evidence outright.
