## Facts

- The State condemned the Caoilis’ nearly one-acre parcel in Dover Township for construction of a highway jug-handle.
- The parcel had about 262 feet of frontage on a state highway and, although zoned residential with two single-family houses, was adjacent to a highway corridor containing commercial uses.
- The State deposited $232,500 as estimated just compensation.
- Condemnation commissioners valued the property at $278,000 based on subdivision into three residential lots and refused to consider a potential use variance as too speculative.
- In a de novo jury trial, the owners offered expert testimony that there was a reasonable probability of obtaining a variance allowing some commercial use.
- The jury awarded $351,000 and, by special interrogatory, confirmed its valuation included potential subdivision allowing part of the tract to be used commercially.
- The Appellate Division affirmed the judgment; the Supreme Court granted review.

## Issues

1. In determining just-compensation fair market value, may the factfinder consider a potential zoning change or variance that has not been granted?
2. If so, what threshold showing is required before the jury may consider that potential change?
3. Once the threshold is met, may experts value the property using commercially zoned comparable sales and discount to reflect current zoning, timing, and risk of nonapproval?

## Decision

- The Supreme Court affirmed the judgment upholding the $351,000 award.
- The Court held that evidence of a potential zoning change may be considered in fair-market-value determination if the trial court first finds sufficient evidence that the change is reasonably probable.
- The Court approved valuation methods that incorporate the potential change—such as using commercial comparables with appropriate discounts—so long as the approach reflects what a willing buyer and willing seller would consider on the date of taking, not speculative future value.

## Legal Principles

- Just compensation is ordinarily measured by fair market value: the price a willing buyer and willing seller would agree upon, neither under compulsion and both informed of relevant facts.
- Prospective uses dependent on governmental action (including rezoning or variances) may affect market value only when supported by evidence showing a reasonable probability the change would occur in the foreseeable future.
- The trial court acts as gatekeeper: absent a sufficient showing of reasonable probability, rezoning/variance evidence is excluded as speculative.
- If reasonable probability is shown, experts may use methodologies reflecting that probability, including reliance on comparables consistent with the higher potential use and a risk/timing discount to account for present zoning restrictions, approval uncertainty, and expected delay and costs.

## Conclusion

The court held that condemnation valuation may include a reasonably probable zoning/variance change, and it permitted expert valuation methods that model how market participants would price that probability through risk-adjusted discounts as of the taking date.


State by Comm'r of Transp. v. Caoili, 135 N.J. 252, 639 A.2d 275 (N.J. 1994)