Certified Residential Appraiser Practice Exam

The Fifth Amendment to the U.S. Constitution guarantees payment of what for the taking of private property?

1. Market value

2. Just compensation

3. Fair market value

4. Replacement cost

The correct answer is: Just compensation

The Fifth Amendment to the U.S. Constitution specifically states that private property shall not be taken for public use without just compensation. This legal principle ensures that when the government exercises its power of eminent domain to take private property, the owner is entitled to receive compensation that is deemed fair and equitable for the property lost. The term "just compensation" encompasses various factors including the fair market value of the property at the time of the taking, but it aims to provide a broader sense of equity to the property owner rather than a strict calculation based purely on market figures. The idea is to make the property owner whole to the extent possible, reflecting not just the monetary value, but also the loss incurred by the taking. While "market value" and "fair market value" are closely related concepts, they do not sufficiently capture the comprehensive nature of "just compensation," which may include considerations beyond mere market considerations, such as the emotional or intangible value associated with the property. Replacement cost, on the other hand, does not apply directly to the takings clause of the Fifth Amendment, as it pertains more to the cost of reproducing or replacing the physical asset rather than compensating for its loss in a legal context.