Converted Single Family Residence

[Beth G]

I received an assignment from a client to appraise a converted single family home in a commercial zone. When I went to the inspection, I found that the owner had remodeled the home as a residence. She had advertised the home to lease as either an office or home but got someone who wants to rent it as a home. Do I do a highest and best use (commercial; it is across the street from all commercial but there are some SFR in the other direction) and appraise it as commercial and then address the functional obsolescence as such? It could feasibly be used as an office even though it is remodeled as a home but there are clearly issues of functional obsolescence (features that would not be seen in an office; oversized bathroom, kitchen, etc.). Thanks.

 

[PropertyEconomics]

Beth,
I would think you have a highest and best use issue, but you also have market support that the interim use is currently for single family residential. Ultimate highest and best use may be for conversion to an office, however, current market conditions are such that continued use for a residence is reasonable and supported.
The ideal situation, as I am sure you are aware, would be to have comparables which are highly similar in their interim use.

 

[Howard Klahr]

Ultimate highest and best use may be for conversion to an office, however, current market conditions are such that continued use for a residence is reasonable and supported.

This is a big leap to arrive at this conclusion based on the information presented in the OP. The first step is to determine the feasibility of utilizing the property as office with the existing structure. This would address any and all costs for conversion as well as and reductions due to functional or other limitations.

One would also need to evaluate the land value as a commercial site. In the event the continued use as a residence exceeds the land value, only then would the current use be considered an interim use.

 

[PropertyEconomics]

This is a big leap to arrive at this conclusion based on the information presented in the OP. The first step is to determine the feasibility of utilizing the property as office with the existing structure. This would address any and all costs for conversion as well as and reductions due to functional or other limitations.

One would also need to evaluate the land value as a commercial site. In the event the continued use as a residence exceeds the land value, only then would the current use be considered an interim use.

With many conversions in the neighborhood there is sufficient data to suggest that a change is occurring. I dont know if you have visited many of these home conversions near a commercial center but there is not very much expense of conversion at all ... or atleast that has been my experience. Most in my area are done for law offices, small real estate offices, or for architects.
You are quite correct, I havent seen the property, but I remain convinced that highest and best use analysis will solve the problem and lead the appraiser on the correct path to valuation.

 

[Howard Klahr]

I remain convinced that highest and best use analysis will solve the problem and lead the appraiser on the correct path to valuation.

Now here we agree.

 

[PropertyEconomics]

Now here we agree.

It was in my original post as well.