Present Use Vs. Proposed Use

[RobinHood]

When requesting a commercial appraisal to determine a proper sale price for a 3-ac. parcel in California that has a good building on it, but the buyer who has submitted an offer is going to demolish the building and use the land to build condos, is there a standard that states whether the parcel should be appraised for the FMV of its current use vs. the proposed use? Its value based on x number of condo lots would probably be different than its value as is. The current building is a small special purpose utility building but due to its location it is of limited utility to any but a rare buyer, so marketing it for use as-is would likely mean it would be on the market for a long time. I'm wondering if there is a standard, rule or practice that would state that one approach should be followed over the other.

Thanks.

 

[Howard Klahr]

While not a rule per se, a highest and best use analysis would indicate if the property value is based on the improvements "as is" or "as if" vacant and available for development.

 

[Gobears81]

I agree with Howard. The highest and best use as is might be for future development of condo lots, with a possible deduction for demolition of the existing building. Only thing that I might add is that its as-is value is probably not based on x number of condo lots, given the process and costs associated with approval, which would essentially make it land with entitlements.

 

[Deleted member 128537]

The appraiser should appraise the property "as is" based upon highest and best use and compare it to other properties with similar highest and best use. So in your case the value is not based upon how many condos can be put on the property. Rather it is based upon what a typical developer would pay for that property undeveloped. So let's say a developer could get 1,000,000 if he developed the land and sold it. But he may only pay 500,000 for it because he has to bear risk and development costs. So "as is" is never "as proposed." That's a different problem.

 

[hastalavista]

If the value is "market value", then it would be based on what the H&BU of the property, as-is, is.

You say that it is improved with a small special-purpose building. Depending on how special that special purpose is, the H&BU of the property with the improvement may not be as-it-is-improved.

If the site, as a condo development, is worth more than the site + improvements in their as-is state, then the property should be valued as a condo development site (assuming there is no other highest and best use).

 

[RobinHood]

Thank you all for your time, I appreciate your feedback, it is helpful.

 

[George Hatch]

Market value is dependent on the actions of the typical buyers and sellers, each acting in what they perceive to be their own best interests. If these market participants realize the site is worth more as redevelopment-bait for a condo project than in it's current use then that underlying land value will represent the market value. I.e., the most probable price in the market. In spite of the existing improvements and the existing use.

You basically can't get to market value without valuing the property within the context of its highest and best use. By definition, the value for a use that does not represent the HBU of the property in its "as is" condition is something other than "market value".