Highest And Best Use Sf Or Mf

[J Grant]

DOM 5 days and higher than list price, a buyer wants it for its larger sf and/or conversion potential- the odd layout did not negatively affect market appeal. Ask RE agent about other offers why it sold higher than list price.

It is atypical /larger than the houses in neighborhood, but not necessarily an over improvement. An over improvement classification would mean buyers are not willing to pay more for the larger sf, it seems like they are willing to pay for the larger sf.

 

[Meandering]

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

For a lending report?
Is the cost approach necessary?
How do you address remaining economic life, of a building that could be converted, to a different use, or could remain with it's existing use?

Perhaps, that issue is clear cut in urban areas. That is not true of more rural or suburban areas.

Major employer laying off? Are you gonna need more rental stock??

Lots more to consider beyond the costs of adding walls, doors and kitchens.

.

 

[Meandering]

DOM 5 days and higher than list price, a buyer wants it for its larger sf and/or conversion potential- the odd layout did not negatively affect market appeal. Ask RE agent about other offers why it sold higher than list price.

It is atypical /larger than the houses in neighborhood, but not necessarily an over improvement. An over improvement classification would mean buyers are not willing to pay more for the larger sf, it seems like they are willing to pay for the larger sf.

Perhaps the buyer's mom lives next door.

Or just maybe the buyer owns an adjoining property and wants to raze and assemble two or more lots.

Buyer motivations SHOULD NOT BE opined, but rather, should be asked.

.

 

[Appraising101]

Thank you all for your response and suggestions. I'm going to proceed as is with the SF as the differences are so close but I will fully disclose this HBU data in my report. I have to remember that the cost to convert is easy but these are all estimates. And I've considered a kitchen that is basic, like the rest of the house. There is a lot of potential to convert this to a MF and possibly change some other features that would allow the ROI to be much higher than I am anticipating. But, as is, it does add value.

To answer a few questions, the area does not have many SF conversions to MF but the typical SF GLA in this area is about 1400 SF. The subject is 2800 and is very similar to the size of other MF in the area. This is an old neighborhood and if these were all once SF converted to MF, it happened quite some time ago. Rents are strong in the area as it is near the highway.

I have no problem completing an "as is" value as everything HAS a value, but an "as is" value is not always a HBU value. My concern comes with the HBU and lending. But as stated, it adds some value and I will explain in detail in the report my findings.

Thanks to all

 

[Appraising101]

Perhaps the buyer's mom lives next door.

Or just maybe the buyer owns an adjoining property and wants to raze and assemble two or more lots.

Buyer motivations SHOULD NOT BE opined, but rather, should be asked.

.

I agree and understand what you mean about it necessarily not being an overimprovement because someone is willing to buy it, but, what i'm finding in this area is buyers are coming north because the southern part is getting way too expensive so they'll offer over and above what is norm here as they have lost out on other deals. And to them, this price seems reasonable. ~Now i'm not saying that is the case in this property as I do need to discuss more with Realtor, but I have seen that happen also

 

[Tom4value]

Thank you all for your response and suggestions. I'm going to proceed as is with the SF as the differences are so close but I will fully disclose this HBU data in my report. I have to remember that the cost to convert is easy but these are all estimates. And I've considered a kitchen that is basic, like the rest of the house. There is a lot of potential to convert this to a MF and possibly change some other features that would allow the ROI to be much higher than I am anticipating. But, as is, it does add value.

To answer a few questions, the area does not have many SF conversions to MF but the typical SF GLA in this area is about 1400 SF. The subject is 2800 and is very similar to the size of other MF in the area. This is an old neighborhood and if these were all once SF converted to MF, it happened quite some time ago. Rents are strong in the area as it is near the highway.

I have no problem completing an "as is" value as everything HAS a value, but an "as is" value is not always a HBU value. My concern comes with the HBU and lending. But as stated, it adds some value and I will explain in detail in the report my findings.

Thanks to all

I think you made the right decision keeping it as a single family. You appropriately applied the tests for highest and best use and determined that they are only a thousand dollars apart in value and the cost to install a kitchen would be more than a thousand, keeping it as a single is the most economically feasible. Also, I know as an appraiser you don't care about the financing but as a person you do, this way will make the deal work. Of course you know, explain everything here in the report.

 

[Terrel L. Shields]

The problem keeping it a SF, and something I didn't fully address, is it has an odd functional layout.

That is a functional obsolescence, address elsewhere ...not HBU. AS IS it is SF unless a MF vacant lot is worth more. AS IF VACANT AND AVAILABLE FOR ITS HIGHEST AND BEST USE it is MF. So HBU "as is" is what it is. Don't try to create something it isn't just to conform to community.

Normally when the HBU as vacant and the HBU as is differs, an obsolescence is created in the improvements which is reflected in the differing value of the land beneath it

 

[hastalavista]

That is a functional obsolescence, address elsewhere ...not HBU.

Disagree 100% unless I misunderstand your post.

Functional obsolescence is directly addressed in H&BU by evaluating the ideal improvement.


To another point, while I agree that the "Tie goes to the runner" (e.g, if the spread between the two financially feasible uses; in this case, existing SFR & converted MF is relatively narrow), I'd opt to conclude the current use is the H&BU as-improved. The analysis used to evaluate that would have to be summarized.

Since we are talking about a value "current", if I have a competing use that is very close to the conversion-point (in this case, via a relatively simple remodeling of the existing improvement), I'm going to have to do some analysis of the remaining economic life; my conclusion, if the trend has been moving toward MF contributes a higher value, of the remaining economic life of the current improvements for the current use is going to be relatively short (5+/- years, perhaps).

None of the above dictates to the property owner what they should or shouldn't do to the property.
All of the above is part of the H&BU analysis.

FWIW, based on the OP's comments, I'd say s/he's gone through most if not all of the necessary analysis to summarize his/her findings.

 

[Terrel L. Shields]

Functional obsolescence is directly addressed in H&BU by evaluating the ideal improvement.

As is v. as if vacant? As is contains an obsolescence if not ideal to site. As vacant there is no obsolescence...An ideal site ? If zoned for either SF or MF, is there an impact?

A house on a lot zoned commercial will generally bring much the same as one zoned residential (value in use). But the C lot is usually more valuable...So the improvements are less valuable, effective age increases. To me reflects an obsolescence related to the change in land value.

 

[hastalavista]

As is v. as if vacant? As is contains an obsolescence if not ideal to site. As vacant there is no obsolescence...An ideal site ? If zoned for either SF or MF, is there an impact?

A house on a lot zoned commercial will generally bring much the same as one zoned residential (value in use). But the C lot is usually more valuable...So the improvements are less valuable, effective age increases. To me reflects an obsolescence related to the change in land value.

Then perhaps I did misunderstand your post?
I thought you said that FO is not addressed in the H&BU.
(I know you know the following, so it isn't directed at you...) since FO affects improvements and not the site, its fundamental analysis begins in the H&BU as-improved component. Indeed, even if an appraiser misses it in the H&BU analysis, once discovered, the appraiser should go back to the H&BU analysis because depending on the specifics, that FO might trigger an action to the improvement (renovate, remodel... which is the issue here at hand, where "remodeling" is a change-in-use, or demolition). The level of FO may also change the likely buyer; another item that is addressed in the H&BU analysis.


I think the fundamental difference you and I have in these discussions (and, it isn't about the analysis, it is about the conclusion) is this:
I say this: Concluding a H&BU of a property other than what exists doesn't require any change in the property. The value is what it is, as-is.
I infer you say this: Concluding a H&BU of a property other than what exists implies that the property must change to what the appraisal's H&BU.

A conclusion of something other than what exists doesn't (IMO) require the property owner to do anything. The value is what it is based on what exists (for an as-is appraisal). That valuation is impacted if whatever exists isn't what should be there. Your example of the existing SFR on a C-zoned land is good example (IMO). While that property's selling price may be the same as a house on SFR-zoned land as-of the effective date, one thing will be affected and one thing might be affected:
1. The remaining economic life (as you point out vis-a-vis an increase in effective age) will shorten.
2. The likely buyer may change. The likely buyer might become an investor rather than an owner-user. A home located in a commercial-transitioning neighborhood might not have its rent-potential affected negatively but it could affect the owner-user appeal of the property. Even if the transition to commercial is slow or comes to a stop, the subject's investor appeal might be greater than its owner-user appeal. And, I'm not talking about an interim use here; transition might take 10-years. The buyer isn't purchasing the property to convert; the buyer is purchasing the property for its rental income as an SFR.