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  #1  
Old 09-30-2011, 09:31 AM
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spieldberg spieldberg is offline
 
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Default Highest and Best Use different from existing use

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?

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Old 09-30-2011, 09:46 AM
rbrienza rbrienza is offline
 
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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
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Old 09-30-2011, 09:48 AM
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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!
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Old 09-30-2011, 09:50 AM
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Originally Posted by rbrienza View Post
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
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?
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Old 09-30-2011, 10:25 AM
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Originally Posted by Pittsburgh Pete View Post
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?

Possibly. They know that it would yeild better use as if, but want to know the value as is.
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  #6  
Old 09-30-2011, 10:31 AM
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Possibly. They know that it would yeild better use as if, but want to know the value as is.
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.
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  #7  
Old 09-30-2011, 11:39 AM
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Quote:
Originally Posted by Pittsburgh Pete View Post
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.
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.
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  #8  
Old 09-30-2011, 11:49 AM
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Originally Posted by Ed Falkowski View Post
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.
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?
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  #9  
Old 09-30-2011, 11:50 AM
Denis DeSaix Denis DeSaix is online now
 
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Quote:
Originally Posted by Ed Falkowski View Post
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.
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  
Old 09-30-2011, 11:51 AM
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"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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