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Highest and Best Use different from existing use

Discussion in 'Commercial/Industrial Appraisals' started by spieldberg, Sep 30, 2011.

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  1. spieldberg

    spieldberg Sophomore Member

    0
    Jul 7, 2007
    Professional Status:
    General Public
    State:
    Oregon
    Greetings-

    An appraiser concludes that the Highest and Best Use is for "conversion" of the subject building from industrial to commercial service.

    Therefore should appraise the subject *as though* it WAS a commercial service building in the appraisal?

    Example: In the Sales Comparison Approach: should he exclusively rely on commercial service sales comparables?

    In the Income Approach: should he appraise the subject as though it a commercial service building?

    THANKS
     
  2. rbrienza

    rbrienza Member

    4
    Sep 16, 2007
    Professional Status:
    Certified General Appraiser
    State:
    Colorado
    Not nessassarily.

    it depends on the SOW - if it is an "AS IS" apprisal then no. However, he needs to have a conversation with the client and possibly change the SOW.

    - Ray
     
  3. Pittsburgh Pete

    Pittsburgh Pete Elite Member

    108
    May 6, 2008
    Professional Status:
    Certified General Appraiser
    State:
    Pennsylvania
    If in fact his highest and best use analysis addresses the site as improved, then yes he should be using commercial sales. His analysis concludes that such a conversion will result in the highest net return to the land. To do otherwise would be to ignore his highest and best use analysis.

    Now if the analysis addresses the site's H&B as if vacant and available for use, the answer is no!
     
  4. Pittsburgh Pete

    Pittsburgh Pete Elite Member

    108
    May 6, 2008
    Professional Status:
    Certified General Appraiser
    State:
    Pennsylvania
    How would scope of work impact the valuation of the property to its highest and best use? Its highest and best use is its highest and best use. Would client request that value not reflect highest and best use?
     
  5. residentialguy

    residentialguy Elite Member

    181
    Mar 24, 2009
    Professional Status:
    Certified Residential Appraiser
    State:
    Minnesota

    Possibly. They know that it would yeild better use as if, but want to know the value as is.
     
  6. Pittsburgh Pete

    Pittsburgh Pete Elite Member

    108
    May 6, 2008
    Professional Status:
    Certified General Appraiser
    State:
    Pennsylvania
    That would be its value "as is" if his highest and best use analysis is correct. Highest and best use is the foundation of your valuation. The analysis is what it is--not just checking a box. To value it otherwise is to ignore the highest and best use analysis.

    If value under its current use is $200,000 and its value as converted to another use is $300,000 less costs of $75,000, the value "as is" is $225,000.
     
  7. Ed Falkowski

    Ed Falkowski Senior Member

    5
    Jun 25, 2007
    Professional Status:
    Certified General Appraiser
    State:
    Pennsylvania
    Pete, you beat me to it. I will add this: you would also need to deduct EI and lost rent for re-tenanting in addition to the conversion costs.

    Point to ponder, actually, regarding my addition - if the building type is owner-user dominated, should EI and lost rent be deducted? I'd argue for no, but am open to differing opinions. These deductions are obviously necessary for investment properties.
     
  8. Pittsburgh Pete

    Pittsburgh Pete Elite Member

    108
    May 6, 2008
    Professional Status:
    Certified General Appraiser
    State:
    Pennsylvania
    No problem--I agree--"costs" would include such considerations. I'm tempted to agree with your second point as well--different motivations.

    Where did Resguy get that "as if" thingy?
     
  9. Denis DeSaix

    Denis DeSaix Elite Member

    532
    May 16, 2005
    Professional Status:
    Certified General Appraiser
    State:
    California
    I'll throw my 2-cents in:
    EI, maybe not. Lost rent, maybe so... I'm thinking if the owner-user is going to have to occupy a substitute property while the conversion is taking place, that may be a consideration in the price-negotiation. Although the rent deduction should probably be based on the not-HBU rate. And, depending on the conversion schedule, the amount may not be significant.
     
  10. zdfenton

    zdfenton Junior Member

    2
    Nov 13, 2008
    Professional Status:
    Certified General Appraiser
    State:
    Wisconsin
    "Market Value" would be value at it's highest and best use

    "Value in Use" would be it's value at it's current use

    It depends on your definition of value. If you're doing this on a Fannie form they're preprinted to market value
     
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