Call it HBU as is or interim use?

[Brad Ellis]

Steven,

Do not get me started on interim use. I've never believed an interim use is H+B use- it is a use a property is put to while waiting for the H+B use to change.

It may be the smart thing to do and econoimically correct- I've never believed it is H+B.


Brad

 

[Fred]

Steven,

Do not get me started on interim use. I've never believed an interim use is H+B use-

The interim use is not HB here.

 

[Fred]

It may be the smart thing to do and econoimically correct- I've never believed it is H+B.

I thought the definition of highest and best use is the economically correct thing. Of those things that are permissible legally and possible physically, it is the one that is most correct economically.

 

[ZZGAMAZZ]

Following Abzent's line of reasoning in Post#17. . . and something that has always confused me . . . the CA measure that supports creation of an ADU on residential parcels . . . might logically lead one to conclude that a SFR without an ADU is less than maximally productive...and non-HBU?

 

[ZZGAMAZZ]

.

Most every post starts with "if the current improvements are legally permissible . . ." but what if the subject is a non-conforming SFR on a commercial lot with 100% re-build rights based upon the desire of the Jurisdictional Authority to be owner-friendly.

Wouldn't HBU be the current improvements although they are not legally permissible, especially if most parcels in the neighborhood were similar non-conforming SFRS in a market environment where business opportunities were waning, with no market for commercial development?

This line of reasoning tends to disregard the 1st test of HBU but the Forum often tells me "Stop going by the book & use common sense..."

 

[Fred]

Most every post starts with "if the current improvements are legally permissible . . ." but what if the subject is a non-conforming SFR on a commercial lot with 100% re-build rights based upon the desire of the Jurisdictional Authority to be owner-friendly.

Wouldn't HBU be the current improvements although they are not legally permissible, especially if most parcels in the neighborhood were similar non-conforming SFRS in a market environment where business opportunities were waning, with no market for commercial development?

This line of reasoning tends to disregard the 1st test of HBU but the Forum often tells me "Stop going by the book & use common sense..."

Just don't interpret "the book" outside the bounds of common sense. That might be hard, because there are mistakes.

In the example you give, it may be necessary to distinguish between the improvements as a "use" of land and what activities the owners or tenants engage in as a "use" of the improvements. That's just one example of how words and phrases in this aspect of real estate have multiple meanings.

There are problems with the semantics "highest and best use" that have been noted by many authors for a long time. I believe the origin of the phrase was based on the use of vacant land - what to grow, what to build. Later, I believe appraisal books used the same phrase for decisions about improved property. This created an environment of ambiguity.
- You have this label, "highest and best" which sounds like one and only one, but each improved "property" has two highest and best uses.
- You have this label that sounds like the extreme optimization of something, when in reality improvements and uses that are not really "high" or "good" or even very desirable become the prevailing option, but it is just that continuing is more profitable than tearing everything down and starting over.

 

[ZZGAMAZZ]

Just wondering although it does not affect the opinion of value:

1) If the subject as a non-conforming SFR on a commercial parcel is defined in the report for lending purposes as HBU interim use, with longer term HBU defined as potential commercial improvement that is more compatible with current zoning, would this tend to ruin the pending loan?

2) Does/can the scope of practice (CA) typically allow a residential appraiser to complete an assignment with the subject as a SFR on a commercial parcel in a neighborhood where this is relatively typical?

 

[Brad Ellis]

Steve,

I thought the definition of highest and best use is the economically correct thing. Of those things that are permissible legally and possible physically, it is the one that is most correct economically.

And here I always thought it was that use that returned the highest value to the land.

You could easily have say a cabin in an outer area of a metro complex that is currently vacant and not being used much at all- let's say you can rent it out weekly for $100. Not much, but while one is waiting for the market to deem the land more valuable under an alternate use, how would it make economic sense to attribute no value to it. the economic reality is to leave it alone, and get what you can while you wait.

In Greg's example, there is a small house. If it is habitable then would we not deem it to have some sort of value- even if not rented? So, if Greg's example tells us that we can raze the existing home to build the new honkin' McMansion, and by doing so, increase the land value by $200K, why has the owner not yet done that?

It certainly would pass the test of a sound economic decision, no?

It could well be that the H+B use has not yet changed to produce that higher land value.

Brad

 

[CANative]

So, if Greg's example tells us that we can raze the existing home to build the new honkin' McMansion, and by doing so, increase the land value by $200K, why has the owner not yet done that?

There's no need to tear down anything to build the honkin McMansion... There's 160 acres here. The small house will contribute additional value to the land even after completion of the planned primary residence.

The reason it's done backwards (little house then big house) is mostly due to the remoteness and the fact that rich people who develope these properties typicall live elsewhere and elsewhere is at least a 5 hour drive.

They build the small house because it goes up quick and you can get by with a simple generator for power. Once up, there is a place to either live while building the larger house or stay in on long weekends while tinkering with the land. It might take a few years to get the Mcmansion right.

And here I always thought it was that use that returned the highest value to the land.

So if the small house is built first and that is the subject of the current appraisal and highest and best use is a large house with a small house how can the current improvements be HBU?

It's like a half-finished property...

 

[The Warrior Monk]

Just wondering although it does not affect the opinion of value:

1) If the subject as a non-conforming SFR on a commercial parcel is defined in the report for lending purposes as HBU interim use, with longer term HBU defined as potential commercial improvement that is more compatible with current zoning, would this tend to ruin the pending loan?

Maybe, maybe not. If the intended user is certain GSEs, it could. However, many other lenders may. The rates could be different from the standard residential property if the investor believes that more risk is associated with the property.

2) Does/can the scope of practice (CA) typically allow a residential appraiser to complete an assignment with the subject as a SFR on a commercial parcel in a neighborhood where this is relatively typical?

It depends. Strictly speaking, I would say no, because the commercial uses of the property would have to be considered. Others may disagree...I'm not one to take such chances...until I get my GC, I continue to work with a GC appraiser on such assignments.

FWIW, just because a property allows commercial uses, it does not mean that the property has an HBU as a commercial use. As an example in my neck of the woods: Properties in the village that are located in the Office District, and especially the Medical Districts, can have much higher values as residential uses.