Commercial zoning SFR allowed

[Terraform]

Commercial zoning with SFR allowed.
Res. Cert appraiser determines the property is underimproved as income producing use as the property currently hosts 4 units and 8 units are the norm in this area. The current improvements are beach front duplex with interior access to both units and a second building duplex that is grandfathered legal non-conforming due to GLA size, and the accessory building cannot be rebuilt if destroyed. The H&B use as is in my opinion is SFR with an accessory use building for family etc. Since the beach front unit can be utilized as a single family home I propose that the H&B use as-is of the property is single family. The land is worth approx 1.2 mil the improvements are worth approx. 350,000. The client would like to bring in a commercial appraiser to determine the H&B use. Why would they need to do that when I can tell them what the H&B use is as vacant and as improved?

 

[George Hatch]

HBU as land means if you put it on the market it most likely WILL be purchased for land value and redeveloped.

Underimproved relative to the HBU as if vacant is no big deal and that's not even the operative question anyway. The operative question is whether it's currently worth more as land or worth more in its existing use.

If it's currently worth more as land (with fair consideration given to the cost of demo of the existing improvements) then you're appraising land.

If it's currently worth more in its existing use then you appraise it that way.

Under no circumstances are you appraising the property for some unquantified speculative use as if the site were vacant. Your two options are "existing use" and " "land minus costs to cure" . Actually, there's a 3rd option - conversion to another legally permissible use, but that rarely comes up with residential use properties.

 

[The Warrior Monk]

Why would they need to do that when I can tell them what the H&B use is as vacant and as improved?

Simple; because the highest and best use of the property might be something other than 1-4 family, and the client doesn't want to take the chance.

I've personally seen residential appraisers screw up the highest and best use of such properties, including some who ended up be sanctioned by the state. Let's take your example. The subject property has a legal, preexisting, nonconforming use. However, the overall density is less than the neighborhood norm. It is entirely possible that the highest and best use of the subject property is another nonconforming use that is of a lesser density than the neighborhood norm. That depends on a whole host of factors that are particular to an area. I see this type of situation all the time in my practice; there is a lot of give-and-take in these situations.

 

[The Warrior Monk]

Actually, there's a 3rd option - conversion to another legally permissible use, but that rarely comes up with residential use properties.

The conversion another nonconforming use is also a possibility. I've seen this plenty of times, where a new nonconforming use is permitted when, say, density is reduced, a nuisance is eliminated, etc. In fact, for discussions sake, if presented with the example given, it seems entirely plausible that an estate property could be created with a detached guest house. It would reduce the number of units, reduce traffic flow, etc. Oftentimes is will also involve some type of recorded restriction on the property.

 

[hastalavista]

The land is worth approx 1.2 mil the improvements are worth approx. 350,000.

So that means, as vacant and ready for development to its H&BU, the site is worth $1,200k.
But, as-is (with the current improvements), the property is worth $1,550k?

Am I reading you correctly?

If so, then it should continue as improved.

The client would like to bring in a commercial appraiser to determine the H&B use. Why would they need to do that when I can tell them what the H&B use is as vacant and as improved?

Perhaps they want to be certain that the certified residential appraiser is correctly analyzing the H&BU since there are alternative uses and, as-vacant, the alternative use is something other than the current use.

If this is your assignment, and you've come to your conclusion, my question is what is the mechanism they want to use to get a commercial appraiser to re-analyze the H&BU?
Are they going to hire a commercial appraiser to only do the H&BU study?
Do they want you to hook-up with a commercial appraiser to co-sign (or provide significant appraisal assistance) to the analysis you've already done?

 

[George Hatch]

If the HBU really is a residential use of some sort then there's no good reason why a CG should be brought in to take over from a *competent* CR.

I think if you could write up a solid HBU analysis and demonstrate that competency to your clients you'd find yourself getting a lot more of those assignments that require that skillset.

The problem I commonly see is that very few CRs can write a solid HBU analysis. Most of the time when I do see an HBU summary in a residential report (which is only maybe 30% of the time) what I see is a regurgitation of the definition of HBU without even a conclusion, let alone any explanation for what they considered.


The irony is that if you guys would get in the habit of routinely writing them up in all your assignments you'd find that something like this that's slightly more complicated would flow really easily for you.

 

[George Hatch]

Lookit, HBU issues probably comprise half of all technical inquiries on this forum so rather than preach at you guys how to write one I'm just gonna show you:

There are four criteria go into an HBU analysis:

Legally permissible: the subject site is zoned (let's say the equivalent of multi-family), which allows residential uses with a maximum density of (let's say) 1 unit per 3,000 sf of lot area. A limited number of other uses are also allowed by right or by other approval processes such as a conditional use permit, blah, blah.

Physically possible: The subject site consists of a typical subdivision lot of 10,000 sf with adequate frontage and depth to accomodate a variety of structures. The site topo is level and the site is completely usable. All typically available public utilities are connected to the site. No apparent adverse conditions are noted, and no undue easements or encroachments are apparent. The site is improved with an older home of 1200 sf, but if vacant and in conjunction with the development criteria could also accommodate up to 3 residential units.

Financially feasible: based on my analyses of the markets for vacant multi-family land and single family homes it appears that the existing SFR does have some contributory value to the whole and it's value exceeds that of the underlying site value.

Maximally profitable; although an exhaustive analysis of all possible uses was not performed it is apparent that the existing use is among those uses deemed legally permissible, physically possible and financially feasible, and can be considered a reasonable expression of the concept of highest and best use (as improved). Further, in comparison with the alternatives for buildable sites, there are no legally permissible uses that would economically justify the removal of these improvements at this time.

That's the long version for a residential appraisal. You could use the last paragraph by itself in most "typical" SFR assignments and as long as those conclusions were all true in that situation it would serve just as well.

 

[The Bob]

Lookit, HBU issues probably comprise half of all technical inquiries on this forum so rather than preach at you guys how to write one I'm just gonna show you:




That's the long version for a residential appraisal. You could use the last paragraph by itself in most "typical" SFR assignments and as long as those conclusions were all true in that situation it would serve just as well.

George,

In this example would the H&B use be the same if the lot were vacant? Shouldn't a discussion of 'if vacant" be included in the analysis of H&B use?

This is one of mine from a typical res report:

HIGHEST & BEST USE: The subject is a legally permissible use allowed under current zoning. The lot size, shape and utility allow for the present improvements, and based on current market conditions, the existing improvements are the most economically feasible and productive use of the property. If vacant, the highest and best use would be to construct a single family dwelling.

 

[Mike Garrett RAA]

Generally speaking Highest and Best Use for residential properties will be..."as improved". Of course there are always exceptions.

In years past I appraised many single family residential properties along Colorado Ave on the west side of Colo Spgs. All of these were zoned commercial but there was little demand for commercial buildings on that street. Some of the residences were used as commercial such as an office or small retail store but I could find little support a use higher than residential.

That might change now with legalization of pot. I have seen a few of properties already converted to commercial use for medical marijuana.

Always thought the highest and best use for my home would be a brothel, casino, and liquor store...but, hey...that ain't going to happen.