FHA H&b Use Analysis

[Mike Garrett RAA]

Yep, you gotta do it. Should only take four or five hours. As an example, I can prove the highest and best use for my single family residence would be a pot store brothel. Only problem...doesn't pass all four tests. So, now I have to prove that. Uh huh,,,,sure. Another fine reason.

 

[CANative]

Uh huh,,,,sure. Another fine reason.

All market value appraisals require this. Not just FHA. Another fine reason... to do something else I guess.

 

[Mike Garrett RAA]

Seriously guys, a highest and best use analysis should take all of two minutes. I looked at it, determined the highest and best use to be as improved, and moved on. If it isn't as improved then you have another problem.

 

[Michigan CG]

Seriously guys, a highest and best use analysis should take all of two minutes. I looked at it, determined the highest and best use to be as improved, and moved on. If it isn't as improved then you have another problem.

You have to check zoning and zoning requirements. I bet 10% of the properties I appraise do not meet zoning requirements.

 

[Deleted member 128537]

You have to check zoning and zoning requirements. I bet 10% of the properties I appraise do not meet zoning requirements.

I would say half of the properties I do are "legal non-conforming" residential. But the land as vacant is still residential highest and best use. Plus in the State of Wisconsin it is a state law that properties must be able to be rebuilt on non-conforming sites. I also agree that highest and best use generally takes me 2 minutes. I can think of only a handful of times it has taken longer. And those were generally odd properties or if there was mixed use zoning (commercial and residential were both legal). But even then it's pretty obvious in most cases. I have however not done a residential appraisal because the highest and best use was not residential. It was clearly commercial.

 

[Mark K]

Plus in the State of Wisconsin it is a state law that properties must be able to be rebuilt on non-conforming sites.

Wow! That certainly makes things easier; wish this state had the same law.

 

[CANative]

Wow! That certainly makes things easier; wish this state had the same law.

I don't think that would be my wish. The 2011 law seems to make things pretty confusing in regards to an appraisers HBU analysis (assuming they really do it.)

https://www.wra.org/WREM/Jun12/NonconformingLegislation/

https://docs.legis.wisconsin.gov/2011/related/acts/170

 

[PhiloFarnsworth]

I must admit that I have gotten into a habit of giving short shrift to H&B analysis when doing SFR appraisals on quarter acre lots in R1 zoning, especially when it comes to reporting. In such cases, I rarely report all four methods of analysis, nor do I usually discuss the difference between as vacant or as improved, usually using a generic comment as to the allowed legal use and the apparent economically feasible uses being as is. This is not to say that, when doing jobs in more rural, less stringent zoning, HBU does not take on becoming a job in itself. But, despite the fact that such analysis and reporting has been required by USPAP for many years, it has only been recently when clients have begun to balk at 104's that basically leave the HBU discussion blank (it is still not uncommon to see this on the rare occasions when I see other's work)
BTW, as a residential appraiser I have always wondered how I am supposed to properly do an HBU analysis when one legal possibility is commercial. As I am not trained or qualified to estimate the comparative of a property in commercial use, how can I fully perform this? The result is that I tend to turn down jobs that present a serious chance of having a more valuable use as commercial as I would not feel qualified to defend my opinion.

 

[PhiloFarnsworth]

In most cases the highest and best use analysis as vacant is pretty simple. In residential properties the question may come up if zoning could be used as multi-family and single-family due to legal zoning. In general it has to be very obvious; such as an extreme shortage of rental property that's causing rents to skyrocket. And you could easily make the case that multi-family residential was the highest and best use. The emphasis is on "easy." I think it should be very clear. For example I did have a case where a property was zoned legally as residential, however everything around it was zoned commercial. In fact the people got it rezoned from commercial to residential to try and get a residential loan. But I told the mortgage company that in my opinion it was maximally productive as commercial since everything around it was commercial and the neighborhood was clearly in transition. They still didn't get the loan. Ironically they were running a business out of the house! As I said pretty darn clear!

Out of curiosity, are you a general or a residential appraiser? And did you complete the appraisal as a residence?

 

[CANative]

The "Two Minute HBU Analysis." I guess that goes hand in hand with the "Five Minute Cost Approach."

IMO, we should do the HBU analysis and cost approach BEFORE we do the Sales Approach.

Quarter acre R1 lot as though vacant. Build a house.

But say you did a first pass cost analysis and the MV indication came out to $275,000. OTOH, your comps are pointing toward $200,000 or so. Is the HBU, as though vacant, still "build a house?"

If we had all be doing that in the early to mid 2000's we might have done some good in slowing down or lessening the impact of the RE crash in the late 2000's.