Reporting Highest And Best Use

[Willie]

I thing we have about 4 or 5 different ideas/scenarios here. Some are talking about URAR box checking and others are talking narrative reports. So we all are kinda confused and probably right. LOL

It all depends on scope. And you had better be very careful in disclosing when not appraising to the properties highest and best use. The general public has no idea of all the appraisal terminology we use and it is very east to see how someone could buy the REO example for $1.0, after looking at the REO apprasial, sell it for $1.1, when it really is worth $2.0.

Or the farm example. Old farmer looks at appraisal for $4,000 per acres, sells it for about that much, when it's really worth $20,000 per acre. Ouch.

I could see where a lawyer would smell blood, right or wrong, and it could be costly even if winable.

Market value vs Use value, are two different things. Again, you can do anything you want, within the scope of the assignment.

 

[xm39hnu]

This thread seems to be asking the same question I asked some time back: When the highest and best use as vacant differs from the highest and best use as improved, what do you do with the determination?

To state the problem more clearly, let's say H&BU as vacant is to improve the property. Typical improvement is a single family residence of about 25 years of age. Subject lot is in a transitional area, and the ideal improvement would be a convenience store or some other commercial establishment.

H&BU as improved turns out to be to continue the present use as a single-family residence, since purchase price plus demolition costs plus reconstruction costs would pull the return below that to be realized by continuing the present use.

Originally posted by "Appraising the Tough Ones." p. 26-27
Often the appraiser concludes that the highest and best use as though vacant would be to improve the site, but the ideal improvement may not resemble the esisting improvement. This comparison indicates functional obsolescence, which must be subsequently addressed by the appraiser.

A mighty good book to have on the shelf.

 

[Fred]

Posted by Frederick

nowhere is it written that you HAVE to appraise the property at its highest and best use.

Or course not, but what is the standard of value? Market value and fair market value generally call for a seller who is knowledgeable, prudent acting, acting in best self-interest, knowledge of the uses to which the property is adaptable, etc.

The identical lot 2 blocks away, identical building (original builder built several about 50 years ago) just sold for 1.5 million. Building was scraped and 2 new townhouses are being built and will be sold as condominium ownership.
I have 2 unit comps that support a value of 750,000 to 850,000

The way I understand it, 1.5M adjusted for site prep, etc, is the as-is the market value.
The 800k is the value in a specific use.

Posted by Jim

When the highest and best use as vacant differs from the highest and best use as improved, what do you do with the determination?

Jim, isn't that the circumstance just about 100% of the time?

I don't have that book, so I don't know the context, but I am fascinated by the quote. Suppose subject has 8 rental units, but the green-space do-gooders got the area downzoned to a limit of 4. Now the as-is improvements don't match the HBU as though vacant, but I sure don't see any functional obsolescence because of that. Just the opposite.

 

[Mark K]

Jim and Ray

Maybe I’m not reading the original post correctly. The following is the only point that I want to put forth:

The definition of Use Value is: The value a specific property has for a specific use. Additionally, according to the 12th Edition of The Appraisal of Real Estate, published by the Appraisal Institute, the appraiser focuses on the value the real estate contributes to the enterprise of which it is a part, without regard to the highest and best use of the property or the monetary amount that might be realized from its sale.

quote:

“If the client asks for the fee-simple market value of the property as if used as an estate, I would think that conditioning H&BU on the HC, fully complying with USPAP disclosure requirements about the effect of the HC, and plastering "subject to's" all over the place would preclude the report being misleading. Anything is misleading if you don't read it correctly, even the directions on an aspirin bottle: take two and keep away from children.”

My comment as to misleading is directed at the use of the term “market value appraisal” when the highest and best use is ignored and property is appraised for a specific purpose, making the appraised value a “use value” as opposed to market value. If you mean that by “conditioning H&BU on the HC,…” you mean that you are limiting the highest and best use analysis to one specific, pre-determined use, then I think you are appraising a Use Value. I think this HC is too H.

Just my opinion.

 

[xm39hnu]

Originally posted by Mark Keutzer wrote...
If you mean that by “conditioning H&BU on the HC,…” you mean that you are limiting the highest and best use analysis to one specific, pre-determined use, then I think you are appraising a Use Value. I think this HC is too H.

Nononono. You don't limit the H&BU analysis. In fact, you present considerably more detail than you otherwise would. Then, after having done that, you present the client's requirements and the HC that the HBU is as the client directed. The user can see the HBU analysis in total. I wasn't talking about burying anything, or failing to disclose. The only way the HC method would be remotely ethical is to present the full H&BU before announcing that you're ignoring it on instructions of the client.

But I see what you mean about using use value, and if done that way, the HC might be avoided. However, that too would require billboard disclosures to keep from misleading the user into thinking he was getting market value.

 

[Pamela Crowley (Florida)]

This would necessitate 2 Definitions of Value, wouldn't it? One for the real H&BU discussions and a second one for the "Use Value" as defined by the client?

 

[Diana Malcolm]

H? HC?

What I really try to focus on with most REO's is "who the hell is going to buy this piece of crap and what will they pay?"

I like Pam's answer.

 

[Verne Hebert]

Back to your specific REO question. If you are reporting this on a 1004 form. The form deals with H&BU as improved, and other. So simply, if your total vacant land value minus total site demo and cleanup, is greater than your improved SFR value; then H&BU is other. My opinion is the specific "other" is beyond the scope of a SFR report. You need to take a good look at zoning; this is within the scope of an SFR.

 

[Fred]

Then again, Verne, if this has to be on a form, why not the land form?

 

[Verne Hebert]

But hey I want to go back off thread a little to the H&BU and HC earlier discussion with Austin, Ray, Jim, Mark, et all.

Let's take this example: Gary Leduc has a thread right now, Need advice on house and 160 acres.

He is suggesting there is not a lot of data (for whatever reason). Let's assume the reason is ag values are in the toilet, and there is legal zoning and demand for subdivision to single family(its maybe even transtional).

Now to value this property as a single family dwelling on a 1004 form and arrive at market value--

Is it your contention that a (HC) hypothetical condition be imposed, and clearly stated to comply with USPAP, to value this as a single family dwelling when H&BU is other (not necessary to define the other)?