Lot Size Adjustment?

[ml2007]

Thanks to everyone for input. One last question, if I were to make adjustments based on PE's suggestion, I am thinking how do we know for sure if the buyer is going to build 8 units, or what about small commercial building in the future, I mean where does it stop ? to assume and make adjustments for Highest and Best use? No offence to you PE. I am just confused a bit more. Thanks again.

 

[PropertyEconomics]

Thanks to everyone for input. One last question, if I were to make adjustments based on PE's suggestion, I am thinking how do we know for sure if the buyer is going to build 8 units, or what about small commercial building in the future, I mean where does it stop ? to assume and make adjustments for Highest and Best use? No offence to you PE. I am just confused a bit more. Thanks again.

You cant change the rules in the middle of the game and expect the answer to remain the same ... ... It is a highest and best use issue and that is totally what my analysis was based upon ... the assumption that the highest and best use is for 8 units and not two.

If it is for commercial use .. then you have to use commercial comparables and none of what I said applies.

Dont change the rules or cloud the issues. If your analysis is its highest and best use as an 8 unit site .. then go with the analysis and dont second guess the analysis you have made if its well supported.

 

[The Warrior Monk]

The appraiser isnt appraising 8 units but merely appraising 2 units and identifying additional value attributable to underutilized land area in my opinion.

It sounds like we're dealing with an interim use. I would consider whether six additional units would be added, or whether the two existing units would be torn down and eight units built. There may also be income to consider during the approval period.

 

[PropertyEconomics]

It sounds like we're dealing with an interim use. I would consider whether six additional units would be added, or whether the two existing units would be torn down and eight units built. There may also be income to consider during the approval period.

My conclusion would be that you would appraise the subject as a duplex, which is perhaps an interim use based upon the highest and best use analysis, with the adjustment for land value being based upon its ability to be developed with 8 units.
This would reflect the "as is" situation and you wouldnt have to wonder when the additional units would be constructed, if ever, or worry about any interim income .... the fact that the site has the ability to be developed with an additional 6 units has value (if this statement is true based upon analysis of market sales) in the form of additional entitlements to this parcel of land.
Given analysis in this manner I do believe you will have adequately appraised the market value of the property as it exists. (At least the method would be correct ... only the sales analysis done properly would result in an adequate appraisal).

 

[Fred]

Primary thought...is a lot that is 40% larger worth more?

That's the right question, but 10,000 sf subject is at least 67% larger than "less than" 6,000 sf comps.

I am thinking how do we know for sure if the buyer is going to build 8 units, or what about small commercial building in the future, I mean where does it stop ? to assume and make adjustments

You never know, for sure, that any piece of land is going to be put to work at HBU.

It seems your main problem here is: you don't have any 10,000 sf and plus size sales, with the same permitted productive capacity. Someone mentioned bracketing already. If these sales exist, you need to find them. If they don't, you are going to have to find the correlation between capacity and prices on the sales you have now and use that as the basis of projecting it out (perhaps straight-line, perhaps with diminishing returns) to subject's capacity. Those capacities might be measured by sf, by buildable unit, by potential cash flow, etc. If this is starting to sound like commercial appraising - guess what?

 

[Robert Hronek]

Is it economically feasible to build the additional units. Given the current improvements and their situation on the site can they get the 6 addition units on. Other factors to consider are coverage, distance from existing structures, set backs, etc.

I would say you need some help from a certified general as you are doing analysis that may not fit you experience and license.

 

[Vegan702]

I agree with you Couch ... doing the highest and best use analysis on this two unit property and concluding the highest and best use would be for addition of six more units .. or removal of the existing two and replacement with eight units .... would not lie outside the limits imposed by the license level.
The appraiser isnt appraising 8 units but merely appraising 2 units and identifying additional value attributable to underutilized land area in my opinion.
This was a good post with thoughtful answers.

I think this is similar to a problem we are having with condotels in NV. They say because in the development of the highest and best use it may involve commerical purposes that a residential person cannot do it. So in this example it would fall under the same guidelines, correct?

 

[PropertyEconomics]

Vegan .. I honestly dont know the answer to that. I dont think your license prevents you from doing a highest and best use analysis .. but if you conclude you have to do a commercial analysis .. then perhaps it does.
It is a very interesting question honestly ... and I think many may argue all different ways.
My advice is if you objectively look at it and think your outside your license .. you are ... even though im sure there are some arrogant a$$es that think they can do it anyway ... I think if your honest with yourself and you feel you are outside the parameters of whats allowable .. its best to turn it down at that point.