Different Future Land Use ("FLU") - your experience?

[Michael P Jacobs MAI]

What is your experience when future land use is different from current zoning? I recently saw a use permit denied on a lot that was zoned for the use in what they are calling an "adverse taking." This was a USE PERMIT, not a building permit. How have you dealt with the possiblity of a zoning change when answering, "Is zoning change likely?" and selecting comps outside of the immediate FLU area? This seems to me an indiscernable issue for the appraiser in some cases that can't be justified under a simple "Extraordinary Assumption" and if you have any insights that could help bring me up to speed I'd appreciate it very much.

 

[Gobears81]

Have you looked at the comprehensive plan? That would probably be a first step

 

[George Hatch]

All any market participant or broker or appraiser can know about a jurisdiction's position is what that jurisdiction has previously stated vs what they have previously done in furtherance of that position in other examples. If you observe and report that much then it's hard to see how any user could expect more from you. Nobody expects you to be Karnak the Magnificent.

Whenever I run into the future multiverse I almost always present both scenarios in my report so that the readers cannot get to thinking that I didn't consider the alternative or didn't pass along to them what I understood of the situation.

 

[Michael P Jacobs MAI]

Have you looked at the comprehensive plan? That would probably be a first step

Not in this case, not yet. CPs in our region "never" go into (1) FLU time projections or (2) the process of reconciling the difference between FLU and current zoning. These being the pivitol issues I'm not sure why I would start there, but if you have an explaination it might be clearer to me.

 

[Michael P Jacobs MAI]

All any market participant or broker or appraiser can know about a jurisdiction's position is what that jurisdiction has previously stated vs what they have previously done in furtherance of that position in other examples. If you observe and report that much then it's hard to see how any user could expect more from you. Nobody expects you to be Karnak the Magnificent.

Whenever I run into the future multiverse I almost always present both scenarios in my report so that the readers cannot get to thinking that I didn't consider the alternative or didn't pass along to them what I understood of the situation.

George, that's been my precedent as well using an extraordinary assumption. It's beyond our scope and the study would probably cost as much as an appraisal on a simple property. I explain that most market participants would resolve the issue before the purchase (by obtaining the use or building permit, or a reasonable assurance). It just leaves a big gaping hole that I'm becoming less satisfied with, and in cases where the appraisal is for estate purposes (IRS) the hole gets deeper and wider. Thanks for the reassuring reply.

 

[Gobears81]

Not in this case, not yet. CPs in our region "never" go into (1) FLU time projections or (2) the process of reconciling the difference between FLU and current zoning. These being the pivitol issues I'm not sure why I would start there, but if you have an explaination it might be clearer to me.

I haven't seen a CP in this area that goes into those items either. But it is still an "official" announcement of the municipality's intention that we can point to.

There's a lot of considerations in determining the likelihood of a zoning change. Just a few: spot zoning, harmony of hypothetical future land use vs surrounding uses, stage of the neighborhood life cycle, feasibility of future land use vs current use, and whether anything of this nature has been done elsewhere in the municipality in the past.

I took a Yellow Book class where they outlined a set of procedures to follow in similar cases. But I've never done a Yellow Book appraisal where the property was being appraised based on the likelihood of re-zoning and don't recall what the steps were. One of the R/W appraisers on here may know of these steps.

 

[George Hatch]

After a certain point, you'd need to have a reason to NOT give serious consideration to the FLU. Especially when one of the concerns among the intended users is for taxation purposes.

 

[Red Flint]

“As the Supreme Court admonished in Olson v. United States, “allow[ing] mere speculation and conjecture to become a guide for the ascertainment of value [is] a thing to be condemned in business transactions as well as in judicial ascertainment of truth.

Of course, zoning regulations may change, and prospective purchasers may well consider the potential for a zoning change or variance when determining the price they would pay for the property. Thus, if there was “a reasonable probability that the property would be rezoned or that a variance could have been obtained in the near future,” this probability should be considered in arriving at the value estimate—but only to the extent that this probability would have affected the price a willing buyer would have paid for the property. It is legally improper to assume that a permit, license, or rezoning would be obtained. Rather, the appraiser’s opinion as to whether there is a reasonable probability of a zoning change must have a factual foundation; an unsupported statement that a zoning change is reasonably probable is insufficient.”

 

[George Hatch]

Appraisers measure the market's reaction to these conditions as of the date. That's not the same thing as assuming those conditions will come to pass in the future and then backdating those effects to the present.

This is one reason why I think most of the aspects of a prospective value that involves something that doesn't currently exist represents a number of hypotheticals. They haven't existed in the past, they don't exist now, and at least some of them will never exist as hypothecized. As of the current date there's nothing "I think it's true but I'm unsure" about those aspects as apply to any of the other elements we routinely assume in our appraisals. It's all potential that may or may not come to pass.

 

[Michael S]

This reminds me of a highest and best use analysis I did for a ~1-acre site with some old buildings in a historic area that was notorious for having very restrictive zoning. I ended up getting someone from the city zoning department to come look at it to determine among other things if the existing two-story structure was demolished (the second floor was only 500 SF or so on a 5,000 SF ground floor) could a new structure be built that tall. We walked out into the street and he basically said that any new building would have to match the rest of the street that was a mix of 1- and 2-story buildings. Of course, for some arbitrary reasons he said all or most of the two-story buildings wouldn't count so any new construction could only be single-story.

I think I concluded hotel or residential would be the H&BU but definitely mentioned that due to the difficulty in getting zoning/planning approval it could be years before it actually got approved and built so a buyer would discount accordingly. I just checked it out on Google Maps, and it looks like they demolished one of the buildings around 2016 and the rest is still just a parking lot for a neighboring hotel that bought it at the same time.