Taking the real estate exam isn’t an easy task.
Luckily for you, there are a few techniques to help remember the limitations to simple absolute ownership as well as how each aspect can affect the land you’re managing.
Simply put, government and other regulatory bodies can affect land ownership. You can remember the aspects of government that are important through the acronym P-E-T-E:
P-olice power, E-minent domain, T-axation, E-scheat
In this article, we will review the various examples of police power vs the power of an eminent domain, but it’s always good to review the complete set with taxation (and compensation) as well as escheat.
Breaking Down Police Power Vs Eminent Domain
Police Power
Police Power is the inherent power and constitutional authority of the government to adopt and enforce regulations and laws to promote public health, safety, morals, and general welfare.
Simply put, this is the right of the government to enforce regulations and any other rules on your private property in accordance with what they believe would be the greater good for their local community.
Examples of police power are familiar to many a property owner, such as
- Zoning
- Rent control
- Pollution and health regulation
- Licensing requirement for aspiring real estate agents to manage and sell real estate
Recent expansions on police power have included building codes on aesthetic regulations. For example, certain advertisements or installations need to pass specific design review boards before.
Police power also includes the right to damage and/or possibly destroy the property if they find that it is necessary for the safety and welfare of the general public.
The best example for this would be is if a condominium unit were to be on fire; firemen would be authorized to destroy said property to prevent the fire from spreading to nearby property.
Take note that the property owner is not entitled to compensation for damages, though you may be able to file a claim for the appropriate insurance policy that is part unit.
Eminent Domain
Eminent Domain is the right of the government to take private property. This can be used for public institutions such as schools, public utilities, highway construction, railroads, and more.
Eminent domain has to do with the inherent right that the government retains to seize control from anyone their private property if they believe that the city, town, or state deem it necessary for public use.
Obviously, this type of authority is a government power that needs to be done within reason as it has to do with the direct property ownership of a fee.
As such, there is a stipulation within state constitutions to pay compensation to the property owner based on a fair assessment of current market value.
Note that this doesn’t cover any potential investment losses in regards to fluctuating market costs.
An example of this which is common amongst real estate owners is the addition of a telephone pole or the usage of a certain piece of real estate for a public access road.
Key Notes
Remember that Police Power essentially regulates what property owners can and can’t do on their property in regards to the community, which is why the government isn’t obligated to pay out any compensation.
A key difference between these two would be that Police Power lets the property owner retain their ownership of their property.
Eminent domain essentially allows government bodies to take private property for use for the public. Though property owners/real estate owners can expect some form of compensation for this.
Taxation and Escheat: The Other Two Government Powers
Taxation is relatively straightforward as this is the state’s right to charge property taxes based on the state market value of your real estate property.
Additional fines and even real estate seizure can occur from non-payment of tax.
Escheat is a state power that turns over the ownership of a property back to itself if the original owner failed to pass on the property to appropriate heirs.
This is a revocable state power, wherein appropriate heirs will be given the property, if properly identified.
Final Words
We hope that this short guide has helped you better understand the differences between police power and eminent domain, as well as the other two methods of government power over real estate.