Can you value as vacant.if its improved?

[CANative]

Sound like site improvements!! When you complete a cost approach including land value, do you indicate that you are invoking a hypothetical condition? Do you consider the value of the land based on its current utilization and how that may or may not impact the underlying land value?

The cost approach is an analysis of the cost to develop a hypothical substitute property. You don't need an HC to build a hypothetical property.

 

[DWiley]

What necessitates the use of an HC?

Easy enough. A HC is necessary when one assumes something that is contrary to what exists.

In the case of the OP, no assumption is being made about anything that does not exist. The underlying land exists.

A question to those who say expressing an opinion about the value of the underlying land requires use of an HC - Do you note that you are using a HC in the cost approach section of your reports, next to reported opinion of the underlying site value?

 

[Pittsburgh Pete]

Then 2-2bix needs to be reworded. Otherwise there is a conflict in reporting the use of the real estate existing and the valuation of real estate not existing.

Don't see why--all falls into the explaining, disclosing, and specifying the scope of work. Both would be addressed in highest and best use--if HB as vacant is different than current use. Such conflicts are evident all the time when the highest and best use of the site as vacant and available for use conflicts with the current utilization. More often than not, such situations are the headache of a commercial vs. a residential appraiser.

 

[DWiley]

The cost approach is an analysis of the cost to develop a hypothical substitute property. You don't need an HC to build a hypothetical property.

Let me see if I have this straight - You don't need a HC to express the underlying land value if you do it one section of the report, but you do need a HC to express the underlying land value alone. I see now. Not. :icon_eyecrazy:

You are correct in noting that some of the language needs to be cleaned up. It would actually be a very large project. The phrase "subject property" occurs many times in USPAP.

 

[Carnivore]

Did Tom Hildebrandt of NC get in trouble over an EA or an HC?

It was about a parcel of land that abutted an airport. I seem to remember it was something about the parcel did not have access to the airport terminal and he appraised as if it would or as if it could have access.

 

[Pittsburgh Pete]

The cost approach is an analysis of the cost to develop a hypothical substitute property. You don't need an HC to build a hypothetical property.

The income approach may address market rent that differs from currrent scheduled rent. In a DCF, renewals will be pegged to market--does that involve a hypothical situation? I think you are over thinking this whole issue and twisting yourself into a pretzel posture. KISS!

 

[Webbed Feet]

Easy enough. A HC is necessary when one assumes something that is contrary to what exists.

In the case of the OP, no assumption is being made about anything that does not exist. The underlying land exists.

A question to those who say expressing an opinion about the value of the underlying land requires use of an HC - Do you note that you are using a HC in the cost approach section of your reports, next to reported opinion of the underlying site value?

When did "contrary," and "does not" come to mean the same thing? And defined to only be the "same thing" as represented by "does not?"

And are we really now going to outline all of the "assumptions" used in form reporting that really, by definition, are HC's but not named so?

P.S. Perhaps the debate shouldn't be about if something is incorrect or not. Maybe the debate should be about if the defintion of HC should be changed and commented on. But I still predict clients going into melt down the moment I ask them if the "Subject" includes the septic system or not. The private well or not. The barn or not. The landscaping or not. The basic site grading or not. The electrical stub in or not. The driveway or not. The fencing or not. The irrigation system or not. ....... etc. etc.

P.S.S. Let us not forget if we are really using the actual lot lines or not. Afterall, as long as you non-hypothetically move them around inside the real lot lines, then there are no assumptions being made about anything that does not exist... And Fannie likes it!

 

[Pittsburgh Pete]

All roads do not lead to FNMA--there are hundreds of other needs and uses of appraisals. Perhaps a comment on the OP on the intended use of the requested report might provide some clarity.

 

[Hamlet]

Perhaps we just need a definition of what constitutes the "subject property" in USPAP. We have Real Property and Personal Property, but no Subject Property definition.

 

[CANative]

The income approach may address market rent that differs from currrent scheduled rent. In a DCF, renewals will be pegged to market--does that involve a hypothical situation? I think you are over thinking this whole issue and twisting yourself into a pretzel posture. KISS!

You'll notice that my posts throughout this thread have me flip-flopping between camps. This is not an accident.

Let me see if I have this straight - You don't need a HC to express the underlying land value if you do it one section of the report, but you do need a HC to express the underlying land value alone. I see now. Not.

The cost approach is not the appraisal. It is a methodology to develop value indications and the result is to be reconciled with everything else that was done (or not done). The hypothical subsititute property is a hypothetical proeprty. We are not holding it out to be a real property that exists as of the date of value.

Don't see why--all falls into the explaining, disclosing, and specifying the scope of work. Both would be addressed in highest and best use--if HB as vacant is different than current use. Such conflicts are evident all the time when the highest and best use of the site as vacant and available for use conflicts with the current utilization. More often than not, such situations are the headache of a commercial vs. a residential appraiser.

Highest and best use is not an appraisal. The results are not opinions of value. The models and constructs used in developing HBU are not opinions of value they are the results of sensitivity analysis.