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Highest Best Use Single Family

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Brandi Bollack

Freshman Member
Joined
Jan 29, 2003
Question, do any of you have a standard comment that is used in regards to highest and best use of single family home in a subdivision? Currently appraising in the state of Texas and they are coming down really hard on appraisers for not addressing this more in single family appraisals.

Any help would be greatly appreciated.
 

Mike Garrett RAA

Elite Member
Gold Supporting Member
Joined
Jan 14, 2002
Professional Status
Certified Residential Appraiser
State
Colorado
The highest and best use of the property is "as improved". Is that simple enough?

I am not sure what Texas is trying to get the appraiser to say but on the URAR there is a box to put an "X" in and that should be sufficient....that is IF the present use is the Highest and Best Use.

Really getting tired of all the BS! Do the four tests....then mark the box and be done with it! You are not writing a term paper.
 

Brandi Bollack

Freshman Member
Joined
Jan 29, 2003
Mike, it should be that simple and sufficient but doesn't appear to be. Single-family use is the current highest a best use but they appear to be wanting a standard comment stating that.

Any additional help?
 

Bill_FL

Senior Member
Joined
Aug 23, 2002
Professional Status
Certified General Appraiser
State
Florida
Brandi,

Just sent you a private mesage.
 

xm39hnu

Senior Member
Joined
Jul 10, 2003
Professional Status
General Public
State
Florida
he highest and best use of the property is "as improved". Is that simple enough?
Yes. Too simple for a summary report, according to what I've been taught about the three levels of reporting.

This statement, or that damned check box, would be adequate for a restricted use report. But a summary report requires more meat in the soup.

"The highest and best use for the subject as vacant was determined to be to improve the property. The ideal improvement was determined to be a single-family residence; under the current zoning ordinance, this is the only permitted improvement. This use was determined to be possible, feasible, and to return maximum benefit.

The highest and best use for the subject as improved was determined to be its present use as a single family residence. This use is legally permissible; it is the only legal use under the current zoning regulations. It is physically possible; there are no topological or engineering considerations evident which would prevent this use. It is financially feasible; local financing for such improvements is readily available at prevailing rates. And it is maximally productive, in that it returns maximum benefit to the owner and to the community."

Checking that silly box may be what all my peers do, but I don't want to be the one to have to argue that it qualifies as a summary of highest and best use before any authority. So I use the above boilerplate in the comments, adjusted for the particular situation. F'rinstance, if the market is oversupplied, the HBU as vacant is to leave vacant due to an oversupplied market. HBU as improved is for SFR.

Same goes for that Market Time checkbox. Got a brief summary of how we arrived at "Exposure" time.
 

Tim Hicks (Texas)

Elite Member
Joined
Jan 15, 2002
Professional Status
Certified Residential Appraiser
State
Texas
Yes, Texas hammers the offending appraiser on disiplinary actions for not thoroughly explaining and summarizing the highest and best use. It seems when you get a bad review from the state, they include that with the many other USPAP violations. I seriously doubt that would be an issue if there were not so many other violations. So, it is a good idea to include a summary of highest and best use in an addendum to keep the head hunters away.
 

George Hatch

Elite Member
Gold Supporting Member
Joined
Jan 15, 2002
Professional Status
Certified General Appraiser
State
California
To Summarize an HBU analysis, I use the following:

The existing use is among those uses deemed legally permissible, physically possible and financially feasible, and is considered the most profitable use for the subject site as improved. Thus, the current use is considered an adequate expression of the concept of Highest and Best Use as improved. Further, it is our opinion that there are no legally permissible uses that would economically justify the removal of the existing improvements at this time.

Of course, when you make such a comment, you need to be able to back it up if/when asked to clarify. For example, the existing use would have to be a legally permissible use, even if it's by virtue of being grandfathered. And the comment about not being economically feasible to redevelop would also have to be true. If for some reason these elements are not all true for your subject, that's when you need to start qualifying the above summary; or alternately, reconsider whether the existing use really is the highest and best use as improved.

Now, before Steven S. jumps on my case about the legal and philosophical implications of using such an absolute and somewhat arrogant term as "Highest and Best Use" in an appraisal without developing a comprehensive and quantitative analysis of every conceivable use possible on the site, let me point out that the reason an HBU analysis is required in a "Market Value" based appraisal is so that the property is valued according to what the most typical buyer in a typical sales transaction would use the property for, that use bringing the highest sales price for the property. The purpose of HBU analysis in an appraisal is not for the appraiser to comment on how the existing use as improved falls short of the absolute HBU as if vacant or what HBU would be if you found that unique buyer who has atypical motivations.

It is true that we could be using somewhat 'better' semantics for these general concepts, but for better or worse, there are practical implications to consider and these terms are the ones that are in use right now. My opinion.
 

xm39hnu

Senior Member
Joined
Jul 10, 2003
Professional Status
General Public
State
Florida
Almost anything would probably do, as long as it addresses the elements of HBU. Personally, I've never understood why I have to do an HBU as vacant on a property zoned R-1. And a proper HBU has to have that "as vacant" determination, or so I've been taught. "And if the H&BU is to improve the property, consideration must be given to the ideal improvement."

The main reason for the HBU as improved makes more sense: your comps must have the same HBU, or they're not comparable.

As long as all the elements are stated and the summary sufficiently complex, you'll succeed in baffling them with BS, and your butt's covered. Leave the summary out, and so's your hindquarters.
 

Fred

Elite Member
Joined
Jan 15, 2002
Professional Status
Retired Appraiser
State
Virgin Islands
Now, before Steven S. jumps on my case about the legal and philosophical implications of using such an absolute and somewhat arrogant term as "Highest and Best Use" in an appraisal without developing a comprehensive and quantitative analysis of every conceivable use possible on the site,
:rofl: What's arrogant about the term HBU? And George, I do not favor exerting even a single unecessary calorie (in developing results that credibly fulfill the assignment's purpose :D ).

There are only couple of points here.
1. SR 1-3 is not binding, but that does not stop the state board from imposing supplemental standards and claiming those are USPAP standards.
2. vacant and legal - If the only legal use of the property is house, how many "conceivable" other uses can you quantify. Zero?
3. Improved-feaible: Just about always, you can say that comparing the neighborhood prices, subect value, new house prices, whatever etc. to the RCN plus tear-down cost, it is not economically feasible to remove subject improvements and replace them with something better. That's the test that shows the current improvements represent a substantial fulfillment of the HBU vacant site's potential. That's what goes with the check box.
3a. This would be the legendary curable dep/obsolescence. There are/aren't any alterations, additions, renovations, redesigns to subject that add more to value than cost.

Jim,just a side issue
Too simple for a summary report, according to what I've been taught a
I don't know what you were taught, but how do you know you weren't taught wrong. I often wonder if I was mis-educated. I was self-taught. :D
 
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