Highest & Best value vs As Is value

[jandan60]

If a 'highest & best' use is the value in an appraisal report does the report ALSO need an 'as is' value? Scenario - old hotel no income - highest and best use is 'as vacant'. How does an appraiser come up with an 'as is' value before subtacting the demolishing cost?

I (the banker) reviewed the report and considered it 'appropriate'; examiners said it was not appropriate. m2:

 

[Lee Lansford]

The "as is" opinion of Market Value reflects highest and best use analysis.

I'm not certain of the question that you are posing.

 

[Lee Lansford]

...

How does an appraiser come up with an 'as is' value before subtacting the demolishing cost?

...

If Market Value is sought, the appraiser researches and analyzes comparable data.

 

[leasedfee]

I'm also a bit confused by your question. . . . Appraisals for FIRREA regulated institutions always require an As Is value.

--- If the H&BU As Vacant is maximally productive you determine land value and then subtract demolition cost.
--- Alternatively, if I understand your question: If the H&BU As Improved is maximally productive, it is a renovated stable hotel, then that would be the As Proposed Value, and the shell, poor condition, unstable hotel would be the As Is value.

 

[jandan60]

The bank asked for the 'market value' in the assignment. The report gave us the 'highest & best use' value of the hotel based on vacant land.

The examiner indicated the report should have included not only need the 'highest and best use' value but should have included the 'as is' value. They also indicated USPAP requires both values. (????)

IF that is true - how is an 'as is' value determined on a non-income producing property.......is it as simple as finding hotels in the area that are similar (non-income producing?????) and deduct demolition costs???

Two part question:new_newbie:

 

[leasedfee]

. . . The report gave us the 'highest & best use' value . . . .

There is no such thing. Someone (you; appraiser; or auditor) is really baffled.

H&BU is the technique to determine the use for which the property should be used -- and from that the valuation follows. A site can have 1000s of different uses, or generically 5 or 10 uses. H&BU tests then narrows the 1000s (or half-dozen) uses down to the most probable use which results in the maximal value.

There is no need or obligation to provide a hypothetical As Proposed Value of an As Improved Value. Say if it is a vacant parcel with the highest and best use as an apartment building you'd use sales of land zoned and used for such (minus demo of existing structures). You wouldn't need to value a proposed apartment building.

(There may be questions of providing a stablized value . . . . but your question is too vague for me to venture any further.)

 

[The Warrior Monk]

I concur with leasedfee:

--- If the H&BU As Vacant is maximally productive you determine land value and then subtract demolition cost.

Any investor buying the property as of the date of value is purchasing the property with a defunct hotel. Market value = price paid minus costs to demolish (and possibly other costs associated with the demolition: permits, legal, etc.).

 

[Lee Lansford]

The bank asked for the 'market value' in the assignment. The report gave us the 'highest & best use' value of the hotel based on vacant land.

The examiner indicated the report should have included not only need the 'highest and best use' value but should have included the 'as is' value. They also indicated USPAP requires both values. (????)

...

I'll wager that within the report of the appraisal the appraiser has explained that the present improvements do not contribute to Market Value and that the value is in the land.

If what has been communicated by the appraiser is not understood by the client and any other noted intended user, someone needs to communicate with the appraiser and gain some clarification.

 

[leasedfee]

It also sounds like time to hire a competent third-party appraiser to perform a Standard 3 Review Appraisal. The appraisal may be fine and the others lack ability to understand; alternatively, the appraisal may be jacked-up.

 

[Terrel L. Shields]

USPAP does not require both an As is and an As Improved value. However, the Interagency Guidelines do require both as is and as improved as I understand it.

If an OCC examiner, call their head appraiser guy and ask for the reference
Robert Parson, Real Estate Specialist, at (202) 649-6423

For clarity, the appraiser should state in the HBU section what the HBU "as if vacant and available for its highest and best use" is. It might be for a convenience store (we have a Hotel being torn down to build just such a store near a busy intersection.)

Then they should state what the HBU is "as is"....if that value is lower than the value "as if vacant" then the HBU is vacant. The gray area is when the building demolition covers the spread between the two values...

But yes, the appraiser should state both values in new construction or remodeling and justify both in all regulated bank appraisals regardless of the value.

This is directly from the Interagency Guidelines that FDIC and OCC plus et al uses and references remodeling but I think there is another fiat somewhere that basically states you need both values.

For a transaction financing construction or renovation of a building, an institution would generally request an appraiser to provide the property's current market value in its "as is" condition, and, as applicable, its prospective market value upon completion and/or prospective market value upon stabilization.
Prospective market value opinions should be based upon current and reasonably expected market conditions. When an appraisal includes prospective market value opinions, there should be a point of reference to the market conditions and time frame on which the appraiser based the analysis. An institution should understand the real property's "as is" market value and should consider the prospective market value that corresponds to the credit decision and the phase of the project being funded, if applicable.

It is much less clear to me that both values are required when the purpose is to value the "as is" value and renovation is not involved.