Highest And Best Use Sf Or Mf

[Appraising101]

I have a single family that is larger than all others in the immediate area at 2800 sf. The accepted SF GLA ranges from 1300 -1700 with a fewer higher or lower. This property is set up odd, as if it were a multi family in the past. The entire street is multi family homes and if it were vacant land, then I would automatically know the HBU would be multi family. My concern is the improvements still offer value to the lot. The zoning allows for both single and multi family. There is a full bath and bedrooms on each floor but only 1 kitchen, on the first floor. There is a front and a rear stairway. To convert to a MF, a kitchen would need to be placed on the 2nd floor (currently there is a family room on this floor right above the lower level kitchen) and the stairway in the rear from the kitchen to the second floor would need to be blocked off (a small wall built) to have private exit in the rear and then have another door built in the lower level kitchen (which there is already a bump out that seems as if it were an exit at one point).

The problem I have is the value of the single family as is and value as if it were a MF (including the cost to convert) are so close, I mean to possibly 1,000. And my conversion costs are an estimate. *Did I mention this is a sale, fun, fun. Oh and out of the 7 listings this property has had in MLS (including those that expired, cancelled, etc. 1 of them listed it as a 2 family but indicated it was in the process of being converted). ~that obviously didn't happen.

Key points: its practically set up like a 2 fam, just needs 2nd kitchen and door.
It's zoned for SF and MF
All properties on the street are MF, with the exception of a few SF that are 1300 sf in size.

I'd love to hear suggestions/thoughts.
thank you

 

[Howard Klahr]

Have many SFR been recently converted to MF? What are occupancy levels for MF properties? Are rental rates increasing? Did you include EI in your conversion cost estimates? Do the MF properties have sufficient positive cash flow to warrant conversion?

I am going to take some liberties here and you can tell me if this reflects conditions in the market/neighborhood. "The subject area is currently in transition from SFR to MF. Currently, conversion of the subject from SFR to MF is at or nearing the tipping point. However, at this point in time values are insufficient to justify conversion of the subject property. As a result, the highest and best use is considered to be continued use as a SFR."

Hope this helps

 

[Michigan CG]

The problem I have is the value of the single family as is and value as if it were a MF (including the cost to convert) are so close, I mean to possibly 1,000.

As Howard stated, did you include EI? There is risk, contingency and EI to consider as the time, talent and management of the conversion is not free.

 

[leasedfee]

How much of a value difference is between the (a) value As Is, (b) value As Converted, and (c) the value as Vacant? Using depreciation of the building + cost-push inflation versus the appreciation rate of vacant land, the switching point can be estimated. As Is, it may be an interim use, or it may not be an interim use. As Converted would only make sense if the investor can get a good 20 years out of the conversion costs (include the rent-loss soft cost to vacate the structure if tenancy is interrupted by construction). If H&BU is multi-family land in a few years, conversion makes no sense. Is there a market to develop multi-family?

 

[Meandering]

Little more basic.

What is the intended use of the report?
Lending?

Whatever happened to AS-IS as of the day?

If both tests of H&B are coming in very close, you can say that in your H&B analysis, and that a changeof use/or not, in the future, will be more reliant upon localized economic conditions supporting/or not, additional rental space. If you want to project your localized economics, go for it, however, for the lending appraisal, it is what it is.

.

 

[Howard Klahr]

a changeof use/or not, in the future, will be more reliant upon localized economic conditions supporting/or not,

And then how do you plan on addressing remaining economic life?

 

[J Grant]

If the improvements contribute value then HBU is existing use. Zoning allows both so it's not like a conversion has to take place for vacant site to max out value anyway.

This is a sale, it is sold "as is", correct? And the lender needs an "as is" value opinion, so give them that. Of course note what you wrote here...that subject is larger than typical for area, that street has multi family dwellings on it, that due to mixed use zoning, a buyer might buy subject for single family use , or convert it at some future time to a duplex use. How does the presence of so many multi family dwellings around it affect value as a single family? The SC price and DOM is a clue. Hopefully some larger sold or listing SFR can be found in the are for comps of the larger sf.

Keep in mind that the potential to convert the subject to multi family at a future date impacts present value, which may be why some buyers are interested in it- or they may just want a larger house in that neighborhood.

 

[Howard Klahr]

If the improvements contribute value then HBU is existing use.

You do understand that highest and best use analysis is comprised of four tests, right? Also as part of the highest and best use analysis as improved includes an evaluation on whether renovations/alterations are warranted. You do remember the ideal improvement concept? All part of H&BU

 

[J Grant]

Gee Howard I totally forgot them until you reminded me !! ( sarcasm)
we know per zoning it is legal , assumption physically possible, is it financially feasible and where max productivity is...

subject is a large SFR, as a large SFR it could rent for the same or more than if cut into 2 smaller unit duplex.es, and have less vacancies due to one tenant. OP would need to compare rents on a large SFR of subject size vs duplex rents to compare (if generating income is purpose of purchase, the house might also appeal to those wanting to live in it)

Additionally, SFR can sell for more than duplexes because owners value them for personal use. So the OP would have to research that as well.

For lending purpose it would be an "as is" value assignment, and the subject improvements contribute value to the site in as is condition.

"Howard-I am going to take some liberties here and you can tell me if this reflects conditions in the market/neighborhood. "The subject area is currently in transition from SFR to MF. Currently, conversion of the subject from SFR to MF is at or nearing the tipping point. However, at this point in time values are insufficient to justify conversion of the subject property. As a result, the highest and best use is considered to be continued use as a SFR."

From your own post, you reached this SFR conclusion, as I did, so your response is ironic...The assumption is the OP will do the research needed to make their decision.

 

[Appraising101]

Have many SFR been recently converted to MF? What are occupancy levels for MF properties? Are rental rates increasing? Did you include EI in your conversion cost estimates? Do the MF properties have sufficient positive cash flow to warrant conversion?

I am going to take some liberties here and you can tell me if this reflects conditions in the market/neighborhood. "The subject area is currently in transition from SFR to MF. Currently, conversion of the subject from SFR to MF is at or nearing the tipping point. However, at this point in time values are insufficient to justify conversion of the subject property. As a result, the highest and best use is considered to be continued use as a SFR."

Hope this helps

If the improvements contribute value then HBU is existing use. Zoning allows both so it's not like a conversion has to take place for vacant site to max out value anyway.

This is a sale, it is sold "as is", correct? And the lender needs an "as is" value opinion, so give them that. Of course note what you wrote here...that subject is larger than typical for area, that street has multi family dwellings on it, that due to mixed use zoning, a buyer might buy subject for single family use , or convert it at some future time to a duplex use. How does the presence of so many multi family dwellings around it affect value as a single family? The SC price and DOM is a clue. Hopefully some larger sold or listing SFR can be found in the are for comps of the larger sf.

Keep in mind that the potential to convert the subject to multi family at a future date impacts present value, which may be why some buyers are interested in it- or they may just want a larger house in that neighborhood.

Yes it is an as is sale and your right, the current buyers I believe are going to convert it into a multi. The problem keeping it a SF, and something I didn't fully address, is it has an odd functional layout. Not really sure how to relay this and have no data to support because, the odd thing is (as another mentioned on a reply) the DOM is only 5 days and it is under contract for higher than the list price. But as the SF it is now, it is an overimprovement for SF in this area, has an odd layout but the intent of the buyer and interest in the property is because of the conversion potential.