Call it HBU as is or interim use?

[Charles Knutson]

What is the answer to the FannieForm question: "Is the highest and best use of the subject property as improved (or proposed) the present use" Yes or No (explain).

The answer is YES -- and PE's response hits the nail on the head.

I believe it is Fannies position if the improvements add any contributory value to the site as vacant, the property is developed to its highest and best use, again assuming the improvements are legally permissible.

If the improvements are legal and the current use has any contributory value, these improvements are the HBU.

In this case, the as improved value of the property is slightly higher than the unimproved value, which makes them the HBU. The issue is improved or vacant -- not whether a bigger house can be supported on the same parcel.

I did a mansion conversion several years ago, and in that case the conversion was an interim use. The market gave the highest value to the property as a potential reconversion to single family -- but every potential buyer wanted to maintain the current use of 4 rental units. The value as a conversion was $30-50k lower than the value as a single family fixer, so the 4 rental units were an interim use. The property sold, but the lender would only go to 70% LTV.

 

[CANative]

I think I disagree Charles, and here is why:

If the land value is $1,000,000 with no improvements and you build a small house at a cost of $100,000 and this results in a sale of the improved property of $1,200,00 then the improvements increased the value of the land by $100,000.

If you instead built a large house on the lot at a cost of $700,000 and this resulted in a sales price of $2,000,000 then those improvements increased the value of the land by $300,000.

As of the effective date, the lot will be underimproved. But it's typical that a larger house will eventually be built.

I don't think the small house is the HBU of this lot.

Maybe I'm not thinking straight. I've got too many weird assignments on my plate right now.

 

[Mike Boyd]

As is. Maybe we can talk about this later.

 

[Abzntminded]

I think I disagree Charles, and here is why:

If the land value is $1,000,000 with no improvements and you build a small house at a cost of $100,000 and this results in a sale of the improved property of $1,200,00 then the improvements increased the value of the land by $100,000.

If you instead built a large house on the lot at a cost of $700,000 and this resulted in a sales price of $2,000,000 then those improvements increased the value of the land by $300,000.

As of the effective date, the lot will be underimproved. But it's typical that a larger house will eventually be built.

I don't think the small house is the HBU of this lot.

Maybe I'm not thinking straight. I've got too many weird assignments on my plate right now.

It seems to me that you're describing an example of "most profitable" use, which is not the same as HBU in context, right? If it were, couldn't you make the case that any use at all might not be HBU if there were a potentially more profitable use?

 

[AlwaysLearning]

I think I disagree Charles, and here is why:

If the land value is $1,000,000 with no improvements and you build a small house at a cost of $100,000 and this results in a sale of the improved property of $1,200,00 then the improvements increased the value of the land by $100,000.

If you instead built a large house on the lot at a cost of $700,000 and this resulted in a sales price of $2,000,000 then those improvements increased the value of the land by $300,000.

As of the effective date, the lot will be underimproved. But it's typical that a larger house will eventually be built.

I don't think the small house is the HBU of this lot.

Maybe I'm not thinking straight. I've got too many weird assignments on my plate right now.

There seems to be a lot of confusion about H&BU as though vacant with H&BU as improved.

They are two separate analysis.

H&BU of a site as though vacant is under presumption that the land is vacant and available for development.

It is common for an existing property to have different H&BU "as though vacant" and "as improved".

In your example above your are doing H&BU of the site as though vacant

 

[Fred]

It seems to me that you're describing an example of "most profitable" use, which is not the same as HBU in context, right? If it were, couldn't you make the case that any use at all might not be HBU if there were a potentially more profitable use?

HBU is the most profitable use. Of all the uses that pass muster as legally permissible and physically possible - if there is more than one - the HBU is the most profitable.

 

[Abzntminded]

HBU is the most profitable use. Of all the uses that pass muster as legally permissible and physically possible - if there is more than one - the HBU is the most profitable.

Ok, that seems straightforward; then in Greg's example above the smaller SFR is not HBU because a larger home would be more profitable?

Because if that's the case, then how could you ever find HBU unless you researched and identified the point of diminishing returns (at least as far as GLA in that example)?

I thought that for the purposes of the form, HBU analysis was comparing uses such as SFR versus 2-unit in an area that was zoned for either, not necessarily comparing specifics of improvements within a particular use.

 

[Fred]

Because if that's the case, then how could you ever find HBU unless you researched and identified the point of diminishing returns (at least as far as GLA in that example)?

Not just GLA, but the color of the paint and type of lawn. Isn't it a good thing we don't have to get that specific. The property is worth what the comps sell for, regardless of whether 3,100 feet is more profitable than the 3,101.

I thought that for the purposes of the form, HBU analysis was comparing uses such as SFR versus 2-unit in an area that was zoned for either, not necessarily comparing specifics of improvements within a particular use.

I only claim to know about appraising, not "the form." However, if the question is HBU as improved - I think the first conclusion one is trying to determine is whether the current improvements should be torn down. That's why I asked Greg what might happen to little house.

 

[Charles Knutson]

FannieMae HBU is different from optimal profitability of the land -- the only question that needs to be answered for FannieMae HBU is whether the property with the existing improvements is worth more than the value of the land as vacant.

If the existing improvements have contributory value towards the land and improvements taken as a whole -- then the answer is YES. If the land would be worth more if vacant, the answer is NO.

The FannieMae HBU question is not concerned with whether the existing improvements are the optimal ROI for the site -- all FannieMae is concerned with is whether the existing improvements add value.

 

[PropertyEconomics]

Fannie can have whatever position they like. I suggest downward facing dog. If the forum didn't have rules I might suggest something else. If alteration or expansion adds more to value than cost, the current use ain't HB.

You are right about one thing, Greg. Where are the fuel pumps and slusheee machine?

Steven ... I fully agree with your conclusion .. the real issue is that appraisers must adhere to the supplemental standards (though we dont call them that any more) within their scope of work. If that is the position of Fannie and an appraiser is to follow USPAP with respect to the scope of work ... I guess one would have to concur with Fannies definition of Highest and Best Use .. wouldnt they?

Another example where an appraiser cant be an appraiser.