Interim Use Property?

[Bridgett Blankenship]

If a property is currently being used as residential property and is zoned residential, but everything around it is slowly turning to commerical use and the subject property's highest and best use in the "future" will eventually be commerical....would the property be considered to be in it's "Interim Use" right now, or at it's highest and best use right now? It's a question on my exam and I don't really know what to think of it. Please help if you can.
-Bridgett

 

[Bill_FL]

Well, technically, all property is being used at its interim highest and best use. You just may not know what the future use will be.

The real question here is how long will it take for that future use to surpass the current use?

 

[Bridgett Blankenship]

That's what I think too. Also, there is no telling how long it will be before the highest and best use changes...so I put that is was currently in it's highest and best use. I just wanted to get a feel for any other comments. Thanks so much!

 

[Austin]

I don’t look at it that way. If the land to value ratio is changing with the value of the site increasing in relation to a trend to commercial while the contributory value of the dwelling is diminishing, as the value of the site as though vacant nears the value of the property as improved, I say it is an interim use suspect. The clue can generally be found in the motivation behind comparable sales. If the market says it is an interim use, then it is an interim use. I saw a house today that I appraised a year or so ago. Owner said I was crazy because his house was commercial property although it was zoned SFR. Has been on the market since with a sign that says: "Commercial Site." Problem is there are about 300 others just like this one in the same environment. That makes it real long term interim.

 

[Bridgett Blankenship]

You've made a good point Austin. Well, I take the exam again on Saturday...I guess I'll read the question very carefully and make my decision. Thanks for your input!
-Bridgett

 

[Steve Wyrick]

Highest and Best Use determination, remember the 4 rules.

As you described the property is currently residential, zoned residential other properties are converting to commercial uses eventually your subject will be commercial is it at its Highest and Best Use or is it current use an Interim Use.

My answer is that based on current zoning as Residential it is at its highest and best use, because it is the only use legally permissible.

However, if the zoning is Commercial, then the use as a residential is an interim use, since the typical assumption (not always true) is that it is legally permissible to use the property for commercial uses but currently it is not economically feasible to change to that use. In the interim period the property is being used for residential uses and when the time comes where it is economically feasible to change the use will be change and it will be legally permissible.

Nasty little question.

 

[bradellis]

Steve,

Succinctly put.

And, I liked Austin's approach, too- looking at where those two lines (Land to building value ratios) will cross on graph.

Consistent use tell us that so long as the current improvements are contributing to overall value, current use is highest and best use.

An interim use presumes the change will occur - and then highest and best use will change.

Hey Bridgett, did you pass?

Brad Ellis, IFA, RAA

 

[Mike Garrett RAA]

An interim use is just that...some use the property is put to while waiting for some future action that will make another use the most productive or as we say in the business..."it's highest and best use". Seldom is it's original use, such as residential, considered an interim use.

Good example of interim use (from my market). A property was developed to be a high tech computer chip manufacturing plant. Before it was completed, the market for computer chips crashed and the company that was to open the plant never made the move to Colorado Springs. Now this was a very expensive building including clean rooms, etc. As an interim use, car dealers parked new cars in this building. Eventually, it was given a retro-fit and is now used for another form of high tech again.

Another example is vacant land that might be used for grazing while waiting for development to residential. We have several areas that were master planned and platted for entire communities and then never developed. It's highest and best use certainly isn't grazing land but that is what it is being used as. Interim Use!

 

[Austin]

Mike:
I read your post this morning and after giving it some thought; I think you are missing a piece of the puzzle. Here is your key statement that caught my attention:

An interim use is just that...some use the property is put to while waiting for some future action that will make another use the most productive or as we say in the business..."it's highest and best use". Seldom is it's original use, such as residential, considered an interim use.

Now lets analyze that statement in light of the principle of change which basically says everything is in a constant state of change. Put your opinion together with the principle of change and every possible use of real estate is an interim use so there has to be a more restrictive definition to trigger the transition. Your examples are not examples of interim uses but are examples of the principle of change in action.
What then triggers an interim use? In my view there are two answers: 1. When the market says it is an interim use. This means when people buy properties under one existing use speculating that the property will soon change into another more intensive use with a value exceeding the value as improved or purchased the property and are just waiting until they are ready to develope the property. 2. When the value of the site as though vacant through the process of change exceeds the value of the property as improved or the new highest and best use under a more intensive use as improved exceeds the existing use as improved. Both of these relate to the principle of change but both are triggered within a certain time frame predicated by a change in value which is predicated by a general change in the market. To make this determination requires an awareness of the legal possibilities, the physically possibilities, the feasible uses and some knowledge of the values under each potential use, and a detailed knowledge of values to determine the most profitable of the potential feasible uses. This has to take place in some one's head which means somebody somewhere is doing H & BU analyses all the time.
In summary, a property becomes an interim use on the marginal fringe of a change in highest and best use, which can only be determined by a fairly detailed H & BU analysis of the subject and an analysis of the district or neighborhood. To say otherwise is to say that due to the principle of change all properties are interim uses.

 

[Mike Garrett RAA]

So then you conclude every use is an interim use? I don't agree.