Highest and Best use is commercial, current use is residential.

[KJR2008]

Assignment is a refi for a single family residential, subject is 1,600 sq ft home on approx 1 acre. Property is deed restricted to both residential and commercial, no zoning. Subject is located on a major street with a mix of commercial gas stations, warehouses. etc. HBU is that of commercial, when the HBU is that of commercial, what is the comp selection process, should it be that of similar mix use land improved with residential. If I value the improvemtns as residential, would it not be correct to value the land as residential as well? Thanks for any help.

 

[DWiley]

From The Appraisal of Real Estate, 13th edition, page 361.

...the site value is based on its highest and best use as though vacant and available for development to its most economic use.

If the HBU is commercial, and you value it as residential, then you have rendered an opinion of use value rather than market value.

You say that the HBU is commercial, but you do not specify which HBU. Are you referring to the HBU as if vacant or the HBU as improved? It is possible that the two HBUs are not the same.

If the current use is not the HBU, then the loan is not eligible for purchase by Fannie Mae.

 

[Michigan CG]

Assignment is a refi for a single family residential, subject is 1,600 sq ft home on approx 1 acre. Property is deed restricted to both residential and commercial, no zoning. Subject is located on a major street with a mix of commercial gas stations, warehouses. etc. HBU is that of commercial, when the HBU is that of commercial, what is the comp selection process, should it be that of similar mix use land improved with residential. If I value the improvemtns as residential, would it not be correct to value the land as residential as well? Thanks for any help.

How do you know the Highest and Best Use is commercial?

You don't value land as if vacant "as residential or commercial". You value the land period.

By saying the Highest and Best Use is commercial you are saying that the current improvements don't contribute any value and should be torn down.

 

[Webbed Feet]

Assignment is a refi for a single family residential, subject is 1,600 sq ft home on approx 1 acre. Property is deed restricted to both residential and commercial, no zoning. Subject is located on a major street with a mix of commercial gas stations, warehouses. etc. HBU is that of commercial, when the HBU is that of commercial, what is the comp selection process, should it be that of similar mix use land improved with residential. If I value the improvemtns as residential, would it not be correct to value the land as residential as well? Thanks for any help.

http://www.mckissock.com/McKissock/Appraisal/Default.aspx?gclid=CKOyp5b_5akCFQQnbAodGRPBZQ

http://www.appraisalinstitute.org/education/default.aspx

Anytime... we enjoy helping others.

 

[David Mescon]

By saying the Highest and Best Use is commercial you are saying that the current improvements don't contribute any value and should be torn down.

Not necessarily. It's not unusual, especially in metropolitan areas, to see land uses changing from residential to commercial, with only minor modification to the existing improvements. Real common for law, medical, dental and real estate and other less intense, mostly office uses.

 

[David Mescon]

Assignment is a refi for a single family residential, subject is 1,600 sq ft home on approx 1 acre. Property is deed restricted to both residential and commercial, no zoning. Subject is located on a major street with a mix of commercial gas stations, warehouses. etc. HBU is that of commercial, when the HBU is that of commercial, what is the comp selection process, should it be that of similar mix use land improved with residential. If I value the improvemtns as residential, would it not be correct to value the land as residential as well? Thanks for any help.

Please don't take this response as a personal affront, as it is not intended to be such. That you need to ask this particular question, in and of itself, indicates you are not currently qualified to perform this assignment. It would be unethical for you to complete it unless you associate with an appraiser who is qualified.

 

[Caterina Platt]

Please don't take this response as a personal affront, as it is not intended to be such. That you need to ask this particular question, in and of itself, indicates you are not currently qualified to perform this assignment. It would be unethical for you to complete it unless you associate with an appraiser who is qualified.

Agreed. I'm a Cert. Res., and if I had the inkling that the HBU was commercial (you can see this if you have enough land sales data, or sales data of both type of use for the area for extraction purposes), I'd turn it down. I'm not a Cert. Gen. and have no business messing with commericial use. Period.

 

[Greg Graybadger]

KJR2008, you state that the Highest and Best Use is Commercial. As such, I believe it is outside the scope of your license to proceed. If you affiliate with a CGA, they might teach you how to perform this appraisal properly. I agree with David Mescon; your question reveals that you need more help than this forum can provide. A good training class would be best, as Webbed indicated.

 

[Lee Lansford]

Assignment is a refi for a single family residential, subject is 1,600 sq ft home on approx 1 acre. Property is deed restricted to both residential and commercial, no zoning. Subject is located on a major street with a mix of commercial gas stations, warehouses. etc. HBU is that of commercial, when the HBU is that of commercial, what is the comp selection process, should it be that of similar mix use land improved with residential. If I value the improvemtns as residential, would it not be correct to value the land as residential as well? Thanks for any help.

Keep in mind that land has value and improvements merely contribute (or, not) to value. It is fundamental that the value of the land is whatever the land value might be; there's no such thing as valuing the land as "residential": the land value does not change based upon the improvements.

The assignment is not necessarily all that difficult (though, I suppose that it might be ) once you have good support for site value and awareness of market trends.

The H&B use as VACANT might be one thing (as Mr. Wiley noted) while the H&B use as IMPROVED might be the current use (as long as the MV of the property as it exists exceeds the value of the land as though vacant and, further, though the improvements may not represent the optimum use of the site).

If you're communicating the appraisal via a current Fannie form, you will want to review "Appraiser's Certification #11" before proceeding.

This assignment could be a good learning experience. On the other hand, it might be one that you regret that you accepted.

 

[George Hatch]

With respect to market value, the whole purpose of performing an HBU analysis on a property is to identify the basis upon which the property is actually worth more to the informed buyer per that assumption in the definition of value. Different property types are valued using different units of comparison, subject to different financing programs, having different requirements for exposure time, etc..

I think a lot of people lose sight of the big picture when HBU for an improved property is addressed both "as if vacant" vs "as improved". I think it might be a little easier for most people to relate to the relevant question if it was rephrased to something more along the lines of "HBU subject to the parcel being vacant" vs "HBU of the parcel in its As Is condition". I think most appraisers have a pretty clear understanding of "as is" condition.

In my opinion, "HBU as if vacant" on an improved property has very little meaning, if any, in most mortgage lending assignments. It only becomes meaningful when a market segment is in transition between uses, meaning at least some of them have already been redeveloped for the other use. Even then it's probably more common to see that transition play out over the course of 2 or 3 economic cycles. I think it's real common for residential improvements in these market segments in transition to have a limited remaining economic life at the outset of the transition period - meaning that in the beginning of such a transition some of the better sale prices will still come from the residential buyers and their replacement by the commercial buyers will be more gradual than abrupt.

Even if you change your mind and decide the residential improvements still have contributory value, you might wind up expressing your HBU analysis in terms of "if the current trends continue these improvements may have a very limited remaining economic life of 5-10 years". That's a piece of info that would commonly have a big effect on a lender's decision making process.


With respect to this property an HBU conclusion of the property in it's as is condition being different than it's current use means you're saying that the typical buyer would purchase the property to either convert the existing structure to a different kind of use or to remove the improvements because, within the eye of the buyer who would pay the most for this parcel, those improvements have no contributory value. If it really is the latter than you're valuing the property as vacant land minus the cost to cure to get it to vacant; i.e., demolishing the improvements. (or complete the conversion of the existing improvements to the different use)