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Highest And Best Use Question....

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Dorrie Klatt

Freshman Member
Joined
Mar 7, 2002
Professional Status
Certified Residential Appraiser
State
Pennsylvania
Hello -

I need some help/advice on a property that I was asked to appraise. It is owned by 3 family members and the mother and son each have their own lawyers with each side having their own appraisal being done to come up with a market value.

A quick synopsis of the property is that it is a farmhouse in decent condition with a living room, kitchen, family room, 4 bedrooms and a full bath. And then there is an 30' x 30' in-law suite that was built over the 2-car garage and connected to the main house. Inlaw suite is a kitchenette, living room, bedroom, bath and a laundry/powder room which is used to access the main house.

The house sits on about 7.25 acres that is zoned commmercial (cb1), a small portion of the rear acreage I think is zoned R-2. This zoning makes the residential use legal, but non-conforming. House sits in the very corner of the site near the road which leaves the majority of the subject site open for further development possibilities. Subject's immediate neighborhood is going through a continual transition from residential to commercial.

How to appraise this? Commercial or residential? Highest and best use?

They are asking me for a value as if this was a "residential" property not realizing what the impact of commercial zoning can do to the value of property as compared to "residential" type of zoning. My feeling is the highest and best use would be commercial. Therefore, since I am a residential appraiser, not commercial, I should not take this assignment.

Or am I not understanding highest and best use and should I appraise it as residential because thats what it is used as today, with the "possibility" of commercial uses in the future? And if you don't have similar comparables in a commercially zoned area, do you use similar comps in regards to age and site size, but make an adjustment for the difference in zoning and what would that be?

And if done as a residential appraisal, would you put in a statement that although the property is currently used as a residential dwelling, the zoning would allow for "possible" future commercial uses.

As you can tell, this is a twister for me and I want to do the right thing. Would appreciate any thoughts you folks can send my way........

Thanks,

Dorrie
 

Terrel L. Shields

Elite Member
Gold Supporting Member
Joined
May 2, 2002
Professional Status
Certified General Appraiser
State
Arkansas
It's highest and best use "as if vacant" is commercial, but if your analysis shows that the improved property is worth more than the vacant tract would be, then the highest and best use "as is" would be its current use. I would state that in the report. So, unless vacant commercial tracts are bringing $20,000/acre but a similar residential property would be worth less than $140,000 ( i.e - 7 ac x 20,000 = $140,000 VALUE VACANT) your highest and best use is residential.

That does not mean the land value will not be higher than typical. I would hunt for similar grandfathered properties, even if older sales. And it sounds like you have some excess land that could be sold off as well without damaging the value of the improvements.
 

Ron in AR

Sophomore Member
Joined
Jan 16, 2002
Professional Status
Certified Residential Appraiser
State
Arkansas
[It is owned by 3 family members and the mother and son each have their own lawyers with each side having their own appraisal being done to come up with a market value. ]

My advice is to get out of this deal as quickly as possible. Between the zoning, multiple owners and lawyers, you're going to regret this one.
 
Joined
Jan 13, 2002
Professional Status
Retired Appraiser
State
Florida
I have to agree with Ron. I'd also that I'd tell them I believe a Certified General Appraiser that has the experience and proper license for this type of property would be their best choice. Too many traps already set in this one.
 

Restrain

Elite Member
Joined
Jan 22, 2002
Professional Status
Certified General Appraiser
State
Florida
If the highest and best use is for commercial with a 1 acre site subdivided out for the residence, then I would talk with the client and their attorney about the true highest and best use. There may be a legal reason that they want it as residential vs. highest and best use. However, should they want it that way, you're still going to have to value the land as commercial unless there's a deed restriction prohibiting the development for commercial usage. That's because any typical potential purchaser would be looking at the property for commercial use.

You really need to clarify the appraisal requirements and get them in writing.

Roger
 

Patrick Egger

Sophomore Member
Joined
May 29, 2003
Professional Status
Certified General Appraiser
State
Nevada
This is likely a no win ... first, you have a residential property that may not be the H&BU ... next, you'll have to determine what would be the H&BU, etc. The question is ... are you qualified/experienced etc. to take on this type of assignment?

When you finish ... you'll have 3 people (with each having a separate attorney) who will probably not agree with you ... since they have their own lawyers, I would guess that they don't agree with each other now.

End result ... lots of effort on your part ... potential time in court and having to deal with 3 angry clients ... I'd pass.

Even if the H&BU is residential ... you still have those lawyers looming and there's always a reason ( and a legal action ) when 3 related parties have different lawyers and are asking for different appraisals.
 

xm39hnu

Senior Member
Joined
Jul 10, 2003
Professional Status
General Public
State
Florida
From the course outline of Appraisal Institute's seminar entitled "Case Studies in Highest and Best Use." :


IV. Highest and best use of a site as though vacant
A. Conclusions based on presentation and anlysis of four tests:
1. Legal Permissibility
2. Physical Possibilty
3. Financial Feasibility
4. Maximum Productivity
B. Only alternative conclusions available
1. Leave the site vacant
OR
2. Improve the site

The outline goes on to say that if you determine H&BU to be "leave vacant," state your reasons: Oversupplied market; limited demand; lack of or high cost of financing; absence of growth or change in the subject property area.
If H&BU is to improve the site, the appraiser must address the components of the ideal improvements. (This is no mean task, either.)

It won't help with the original poster's present assignment, but I highly recommend this seminar.

I would accept the assignment, but would call'em back and raise the fee to a couple of grand (at least). The purpose of the appraisal involves litigation support; that will require more detailed reporting than usual. Consider recommending to your client that you report verbally. (Keep a thorough workfile). Opponent litigators can't discover a verbal report. Get your appraisal assignment and instructions in writing.

Don't let the lawyer run on credit, if you're working for one; they're harder to collect from than a broke redneck on welfare. Get a retainer, and make it a good, healthy one. When it runs out, ask for more money. Keep in mind that while this is going on, you may be precluded from accepting some other assignments if there happens to be a conflict of interest; in addition, the demands on your time and availability will be higher than with a traditional 1004 or 2055 appraisal. These constraints are compensable.

Use a narrative report, if you deliver it written. Style it "Summary" whether it's meant to be self-contained or not.

You can learn a lot from this assignment, if you have the interest and the courage to accept it. You'll need a mentor to help you through the tricky spots; call around. Pay a General Appraiser who has experience in litigation support to help you through the rough spots. Make your client reimburse you for his fees and make this arrangement up front in your engagement letter, under, say, technical assistance.

What you do with this assignment depends largely on whether you want to be a forms technician or a "real" appraiser. Respect your limitations, get help with this one, and dive in and do it. Good luck.
 

Rich Hahn

Senior Member
Joined
May 2, 2003
Professional Status
General Public
State
Colorado
How do you appraise something like that?
unless your a Certified with lots of time,
DONT.
But if you do make sure your fee reflects at least 5 regular assignments. Your time spent on this could take as much as 5-6 normal assignments.
 
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