For what it's worth...
You are being asked to render an opinion of value on a property based on a use that currently fails the definition of highest and best use. The fact that there are other small lots in the area is immaterial, as they may be zoned differently; or more likely, are a grandfathered use that is not currently possible for your lot. Since the proposed use as two separate lots is not legally permissible it cannot be considered the highest and best use. Since it cannot be the highest and best use, it also fails the definition of Market Value because the typical buyer and seller, each being adequately informed, would be aware that this is not a legally permissible use and any sale thereof would be based on this knowledge.
When we appraise a property with a hypothetical condition or extraordinary assumption, we are required to have some basis for the assumption or condition, such as plans, specifications, cost breakdowns and other information necessary for a reasonable assumption or condition to be used. From your description of the assignment, it doesn't sound like you have this kind of information. As for hypothetical conditions, there are reasonable conditions and unreasonable conditions. For example, lets say a client approached you about appraising some parcels in the Nevada desert based on the hypothetical condition that they will be oceanfront properties once California falls into the sea? There are some people who would consider this to be a reasonable hypothesis to use, but I'd bet most appraisers wouldn't fall under that category. Would we want to get involved in such an appraisal assignment without a really good reason? What if the assignment was to appraise the property as if it had a casino or an airport on it, even though you knew it to not be possible? Just because someone is asking for an appraisal under specific conditions that may or may not exist elsewhere does not automatically make that a legitimate hypothetical condition to use.
Aside from the appraisal aspect of the assignment, there is the reporting aspect. The report must disclose those conditions and their effect on value. Unless you report is very clear as to the nature of the hypothetical condition, why it is even being considered in an appraisal and its effect on value, you are exposing yourself to a claim that the use of the condition results in a misleading report. If you must do this appraisal under these conditions, the easiest way to deal with the effect on value of hypothetical condition is to include two values; one based on the hypothetical condition and representing a Use Value or some other definition of value, and the other based on the "As Is" condition and representing Market Value. That way, no one can later claim your report is misleading. It is a little more work (like about 15 minutes worth), but it totally covers your rear. If I could be persuaded to do such an appraisal (it would have to be a pretty good reason), this is how I would do it.
George Hatch
