Commercial or Residential?

[Bruce Bugno]

I have a client that is thinking of selling her own home. The home is located along a busy street and the area is changing from single family to commercial. The zoning supports both. Her home could be sold as a single family residence or for use as office space with no change to the structure. Highest and best use is commercial so she could get a higher value for the home as office space than if she sold it as residential. I am not qualified to do a commercial appraisal so how would one handle this situation? Should I suggest the home be appraised as commercial? Could an appraiser still appraise a property one way if its not the highest and best use? ie: she decides to sell it as a residential home and wants to know what the value might be.

 

[Pamela Crowley (Florida)]

Since/if H&BU is Commercial - my opinion would be you need a commercial appraiser. I would not do it.

 

[Anonymous]

You can appraise it as residential after stating that the highest and best use is commercial, but why would you? If you think that you are not qualified to do the commercial appraisal find someone who is, work with that person and learn.

 

[Restrain]

I agree with Walt. This is a good opportunity for a learning experience. I wouldn't turn it down but rather work with an experienced appraiser who knows small commercial properties. Note: There is a BIG difference between small income properties and large income properties and just because an appraiser can do a large mall doesn't mean the appraiser can or will do a small residence/office. If you don't know someone, check with the nearest NAIFA/ASA/AI chapter. There should be someone around to mentor/assist/train you in this type property.

Good luck.

Roger Strahan, SRA

 

[Tim Hicks (Texas)]

Be careful. I am approached by lenders all the time who want me to appraise their mixed use property as "residential" so they can get a home mortgage instead of a business loan. If the highest and best use is "commercial" why would somebody want to live there and not operate a business? Because it is worth more? Not usually. Would want to be living next door to a pawn shop or liquor store or 24 hour convenience store? Highly unlikely. They need a commercial appraisal.

 

[Steve Owen]

Land should always be appraised at it's highest and best use. Then if the improvements add value, the highest and best use of the improved property may be different from the highest and best use of the land. (In some cases, especially when land values are increasing rapidly, that may be an interim highest and best use.) If the land value, less cost of removal of the improvements, at it's highest and best use is worth more than the improved property, as residential, then the property as a whole cannot be residential highest and best use.

In the situation you describe, it sounds like you are contemplating using the house, "as is" for commercial use. There would probably be some major functional obsolescence issues in doing so. Therefore, it is at least possible that the improved property might be worth more as a residential property than as a commercial one. A lot of factors come into play, including, most importantly, the exact location and what types of commercial influences there are. If you try to determine value as a residence, don't forget external obsolescence. My advice, get a commercial appraiser to help you, there isn't any reason you cannot do this appraisal if you do so, and, you might just find a new interest.

 

[Richard Carlsen]

You could not use a 1004 form to appraise this property because once you get to Highest & Best Use, if you put anything but residential in, you have to stop. The form is only for residential.

If H&B use is commercial, tell her to get a commercial appraiser and then point her toward one of the best commercial appraisers around and let him/her do their thing.

Telling the truth is one of the things that friends are for.

 

[Bill_FL]

I have a client that is thinking of selling her own home. The home is located along a busy street and the area is changing from single family to commercial. The zoning supports both.

Have you checked the code as well? I have seen cases where it would be assumed that the highest and best use would be commerical, however due to code, to change the current use to commercial, many costly changes are required.

These can included changes for the Americans with Disabilities Act, changes to fire code, changes required for the number of parking slots per sf, and many more. When the cost of the changes are considered, H&B may nto really be commerical The H&B would be interim as residential. At some time in the future, if the market were to change and commerical values increase, then the costs of the changes could be supported to chnage the H&B to commerical.