Highest and best use

[Carnivore]

In my case the value of the site and what the proprerty was worth as improved is very close. This is Vermont and the only village land sale was over two years old. There was such little data of land sales and marginal houses that it becomes a judgement call. after discussing the situation with other appraisers I gave it the benefit of the doubt and decided H&B use was its present use and compared it to other marginal homes. Where you have a more active maket with plenty of sales I can imagine it would be easier to determine H&B with more confidence. In this area it seems that it is not very cut and dry. Maybe thats the way it is in most areas. I have seen many cases where properties sold for other uses than what I would have thought. There was a sale recently of a 4,000+ sqft run down home that was across the road from a manufacturing plant and near other industrial properties not to mention a busy road. It was an attractive home but I didn't think any one would want to fix it up and live there as a residence. Figured someone would turn it into apartments. nope. A guy that lived about 1/2 mile away sold his 1,000 sq ft home and bought it to live there. Glad I didn't have to appraise it. Thanks again for all the good discussion and theory.

Richard,

Maybe the guy was thinking just like you that no one would buy the house to live in, so he bought it to live in(interim use) until such time someone offered to buy it from him for a healthy profit to build a sky scraper(future HBU).

Principle of Anticipation, I believe is what they call it. This is what scalds my butte about the recent Supreme court ruling on condemnation to allow a developer to steal your property simply because you anticipated the future value better than they did.

 

[Otis Key]

In my case the value of the site and what the proprerty was worth as improved is very close. This is Vermont and the only village land sale was over two years old. There was such little data of land sales and marginal houses that it becomes a judgement call. after discussing the situation with other appraisers I gave it the benefit of the doubt and decided H&B use was its present use and compared it to other marginal homes. Where you have a more active maket with plenty of sales I can imagine it would be easier to determine H&B with more confidence. In this area it seems that it is not very cut and dry. Maybe thats the way it is in most areas. I have seen many cases where properties sold for other uses than what I would have thought. There was a sale recently of a 4,000+ sqft run down home that was across the road from a manufacturing plant and near other industrial properties not to mention a busy road. It was an attractive home but I didn't think any one would want to fix it up and live there as a residence. Figured someone would turn it into apartments. nope. A guy that lived about 1/2 mile away sold his 1,000 sq ft home and bought it to live there. Glad I didn't have to appraise it. Thanks again for all the good discussion and theory.

Is that city, county or state? (my bold and accents) Is that the only sale of an improved property or are you just making conversation?

Seriously, if that was the only sale, how do you establish the site value? How are you addressing the H&BU situation? It sounds to me, from this post, that there are no "ground rules" there and therefore it would mean that appraisals, purchases, and sales are based upon speculation. Of course, I don't know your market and this is also based upon speculation.

Just for conversation(?) purposes, I guess. Wondering how you're establishing, as I said before, the H&BU. Is it zoning? Speculation? Appreciation? Sales?

 

[Richard Goodfellow]

There are other building sites out of the village center and with the market softening the older land sale is still a pretty good indicator. I found improved properties that were fairly similar. I had one sale that was quite similar and I hung my hat on that one. The point I was trying to make is if you estimate the site at $150,000 it could sell 5-10% more or less. same with the home, its an estimate based on the available data. when you don't have a lot of data there are a lot of judgement calls. In my case it was a close call. welcome to vermont

 

[Brad Ellis]

Steven,

Your quote, "Not true. Improvements can add value and it can still be more profitable to knock them down. That’s what an “interim use’ is. Need examples?"

Sure do cause this flies in the face of theory- specifically the consistent use theory.

If it is more profitable to knock down the improvements then they are no longer contributing to value. If they are contributing to value then it cannot be more profitable to knock them down. The value of the land will depend upon how it is used and if it is more profitable to known down the improvements it must mean that a greater profit can be earned under an alternate use; hence the improvements do not contribute.

Yes- I know about interim use and will not agree that interim use is the H+B use. It is a use while the owner waits until H+B use changes. The moment it becomes more profitable to tear down one set of improvements to replace them with other improvements the H+B use has changed. That does not mean the owner immediately pulls the trigger, but H+B use has already changed. Not all properties are actually put to their H+B use at all times.

Brad

 

[Ross (CO)]

Richard,......Vermont offers so few posters here in the Forum. Welcome. Might you share a few points of fact for the curious ones. What is the actual age of your subject property and are there quantifiable elements of remaining economic life which render considerations in your assignment ? Is this a property which is within a trend for updating and improvement as to enhance REL, or is it in a downward decline regarding condition and improvement and looking to serve out its days as-is ? What types of properties/structures are immediately adjacent to this subject, as well as behind it and across the street ? Pardon me for not jumping back to your original posting to see......but, what is the intended use for your report ?

 

[Fred]

deleted to confuse Greg and Denis

 

[Fred]

Brad,
This is a bit of a side issue, but consistent use “theory” isn’t actually a “theory.” That said, I agree with its advice.

Yes- I know about interim use and will not agree that interim use is the H+B use.

No one said it was. That is why one is called ‘interim” and the other is called “highest and best.”

If it is more profitable to knock down the improvements then they are no longer contributing to value. If they are contributing to value then it cannot be more profitable to knock them down.

Interim uses that add value are very common.

Imagine two multi-acre commercial sites. They are otherwise equal – except one has some a couple thousand sf of old improvements on the frontage edge. There are a few commercial tenants on short-term leases generating, say, $250,000 per year in NOI.

Even when these sites become ripe for development,and developers can calculate residual value in the millions, the site with the interim use will have the higher value. That is because during that first “year” when the developer would be
- interviewing architects, fine-tuning plans to maximize value or create a theme (brand), getting building plans approached, fighting with the permitting committees, swapping lawsuits with “interested” citizen groups who file injunctions against development, attempting to arrange pre-construction leasing agreements with key tenants and their space needs, eventually interviewing contractors and seeking financing -
one property throws off $250,000 while the other property throws off property tax expense. It should be obvious that one site comes with a benefit the other one doesn't have.

 

[hastalavista]

I'm having deja vu all over again reading these posts.

 

[CANative]

I think your second post is more accurate Steve.

 

[Fred]

I think both of you guys have "real time" memberships. Just the other day, Denis was answering my post before I was finished editing. it.