Residential Land with Commercial Highest & Best Use

[Lookingat50]

I have been asked to appraise a lot that is currently zoned residential but with a highest & best use as a commercial lot. It is currently listed as a commercial lot and several similar lots in the immediate area have been rezoned from residential to commercial zoning.

Therefore, I plan on appraising this lot against other similar commercially zoned lots but with a hypothetical assumption that it can be rezoned to a commercial zoning.

Sound right?

 

[Pittsburgh Pete]

Can you get some sense of the probability for rezoning from local officials? How realistic is the hypothetical condition? Those are the pertinent questions along with what is the intended use and who is the intended user.

Anyone would need more info--good luck with that!!

 

[BRCJR]

Will the value opinion be a problem for a commercial assignment, per the license level?

 

[Pittsburgh Pete]

Oh yeah--your license level and competency will be addressed more than your questions!! Saw it coming but forgot to add it to my first post.

 

[Vernon Martin]

Hypothetical appraisals can get you into dangerous territory. I hope this isn't for a lender. If it is for a lender, consider what would happen upon loan default -- the lender would foreclose on a residential parcel and would then have to hire people, perhaps attorneys, to apply for a zoning change. That might entail time and money.

 

[Terrel L. Shields]

that is currently zoned residential but with a highest & best use as a commercial lot

If you are asked to appraise it and it is ZONED RESIDENTIAL...then the HBU today is RESIDENTIAL. Being rezoned to something else is a hypothetical condition because it is contrary to what exists TODAY. HOWEVER, since it appears to be in a location which MAY SEE A CHANGE in the future, you need to comment upon it and what impact it will have on value. Fact is, the market is almost certainly factoring that in already and your comps should reflect similar conditions. The value of the whole property will not change. It is worth what it is worth. But the land value will change (probably up) at the expense of the value of the improvements (which will now suffer an external obsolescence).

You cannot appraise the land at its HBU as commercial, then appraise the improvements as residential.

 

[The Warrior Monk]

These are typically rather complex assignments. At an absolute minimum, I would be down at the planning board, or zoning board of appeals, discussing the likelihood of a zoning change. These changes may take years. You'll also have to find out whether it's really a zoning change or simply a variance for specific uses, which can significantly impact value.

Verification of the sales is a must. You'll have to find out what stage the properties were at when they sold...prior to zoning change, after approvals, or somewhere in-between.

 

[Lookingat50]

Thanks for the feedback...

 

[Terrel L. Shields]

I would be down at the planning board, or zoning board of appeals, discussing the likelihood of a zoning change

David, just keep in mind, we are not appraising the FUTURE zoning. TODAY, the date of the report, the zoning is residential therefore, the subject property cannot by definition be a commercial HBU... maybe tomorrow when they change the zoning...but TODAY...it is still residential as HBU. That is not what exists today although it may exist tomorrow.

 

[Austin]

It sounds like the property is on the outer edge of encroaching commercial development. Don't forget to discount for marketing time. If lots are selling for $10 per square foot and the absorption rate of development will take 5 years to reach this lot you should discount. That could make the H& BU stay residential which raises the question of how did you do a H & BU analysis and determine commercial? Did you consider discounting and rate of absorption and discount?