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Highest and Best Use

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Deadbusiness

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Virginia
Can some USPAP guru answer this question that's been bothering me? Is there ever a time that one would check the "not highest and best use box" and still complete the report? The 1004 has a line to further explain why it's not highest and best use. In the few times I have run into the property not being the highest and best use, the order is cancelled.
 

hglenbetts

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Dec 3, 2007
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Michigan
What does scope of work say?

As is. As H&B. Hypothetical that as is, is H&B?

P.S. By no means a USPAP Guru..
 

Ken B

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As the URAR is used in the appraisal of a SFR, if the HABU of a property is no longer SFR, it would be inappropriate to use a URAR to report your appraisal of that property.

You run into many SFR properties where the existing improvements no longer contribute to value?
 

Deadbusiness

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Certified Residential Appraiser
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Virginia
Just a hypothetical

I have a granfathered duplex which is legal non-conforming. 2nd unit is rented and on separate electric(other utilities shared). 2nd unit is small and just 1 bedroom. Just looking at the single family homes vs. the duplexes, the current configuration seems to bring in the home $40K+ less as a duplex than as a single family via looking at sales of single family v. duplexes (number is an estimate and may be greater after looking closer). Cost to convert back would be under $5,000 via kitchen removal and reinstalling the door between the 2 units which was removed many years ago. All of the checks for HBU tell me it should be made a single family. The inferior unit being rented, and not accessible from the main structure makes the accessory unit arguement invalid.

The above got me thinking about the whole checking the not highest best use box and when that would be valid in any report (not doing that in this case but it got me wondering when it would be done). In my case, I will make the call to the lender about the HBU issue before writing anything if that is truly my situation.
 

PropertyEconomics

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Jun 19, 2007
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Certified General Appraiser
State
New Mexico
Fannie says if the improvements have contributory value, then it is their conclusion the current use represents the highest and best use of the site as improved which would tend to fly in the face of USPAP and standard appraisal practice as we have been taught. That is not to say that the Fannie conclusion is wrong but merely recognizes the requirements of your client (assuming they follow Fannie guidelines).
It is all based on your scope of work and the "as is" value of the property at the time of inspection. If you have one half leased the use may well dicate that you have a duplex. IF this is for a federally regulated institution you have to provide an as is value anyway as mandated by regulation.
Knowing the scope of work is very important in this instance and the requirements of the ultimate user of the report ... which most assume to be Fannie because you simply do not know if fannie will get the loan or not.
The other issue you must be careful of is concluding highest and best use is for SFR, deducting cost to cure, and stating a value $35,000 higher than the value of the property as it exists on the date of your inspection. I would be very cautious in this instance.
 
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Ken B

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Florida
I agree with PE completely.

If you are appraising the property in "as is" condition and the existing improvements continue to add value to the property, the HABU is the existing use. It is easy to try to overthink the problem.
 

leelansford

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Professional Status
Certified Residential Appraiser
State
Illinois
I have a granfathered duplex which is legal non-conforming...


Do the improvements as they exist as of the effective date contribute to market value? If yes, it would be appropriate to "X" the "yes" box (on the Fannie form) as to "H&B Use as improved".

In such instances I include explanation (as and where appropriate) that the improvements are not the optimum use of the site as though vacant, but the improvements do contribute to the MV of the property.

There may be an issue specific to the remaining economic life of the existing improvements that may complicate (for lending use) the appraisal, but such is not your problem.
 

leelansford

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Mar 29, 2002
Professional Status
Certified Residential Appraiser
State
Illinois
I agree with PE completely.

If you are appraising the property in "as is" condition and the existing improvements continue to add value to the property, the HABU is the existing use. It is easy to try to overthink the problem.


I suspect that you probably meant to state that the "H&B Use AS IMPROVED" is the existing use (as the improvements contribute to MV though the improvements as existing are not the optimum use of the site as though vacant).
 

Ken B

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Certified General Appraiser
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Florida
I suspect you are correct. :)
 

NC Old Guy

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Jan 16, 2002
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Certified General Appraiser
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North Carolina
Had 1 last year. Upscale modular (1.5 story) with very large detached garage, (about 4 car, 10-12' door clearance, etc). On right, small O&I dental office--building about 3 yrs old. Across street: neighborhood shopping center about 5 yrs old. On left--multi family zoned parcel. At rear--multi family under construction as townhomes--about 50 feet from backdoor. The subject only single family for couple of blocks either way. Listed as single family......... and commercial. Town zoning board said that zoning could be changed from SF just by asking as that was the consistent with the long term land use plan for the area and that they thought the buyer had already been in to inquire. Sorry, I marked it as H&B NOT SF. Called the lender. Sent the plats, zoning maps, photos. They agreed. It would be perfect (at least last year) for builder, painting company, attorneys and a whole host of others where the improvements would continue to contribute to value as offices and the large garage for either vehicle or material storage. Also was paying a premium for just single family use.
 
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