SFR On Commercial Zoning

[zhencai]

A SFR zoning is business, don't know if it was re-zoned. Owner is running the business from the home (beauty salon). According to the zoning department if property burns down it can be rebuilt as a SFR. I'm not sure how to do the appraisal. Any advice? Thanks a lot!!

 

[Richard Carlsen]

What is the highest and best use of the property? Take your cue from that. If the HBU is unchanged from the current use, you can do it as a SFR. Just be prepared to find some comps with similar business zoning. The UW will certainly want to see some in the report.

Appraisers seem to mistake zoning as the main criteria for determination for appraising a SFR when in fact, HBU is the primary consideration.

 

[Fred]

A SFR zoning is business, don't know if it was re-zoned

Well, you need to find out.

Real estate is land and what’s attached; real estate is not buildings and what they happen to sit on. You can't say it is an SFR untial after doing the HBU. Until then, SFR is only happens to be the current use and perhaps the intent of the original design.

If the land is commercial, then you need to be a commercial appraiser. There is no way to determine HBU of the land, HBU of the property as improved or current value without commercial comps.

 

[Mike Garrett RAA]

Richard is correct in stating this is a highest and best use question.

Zoning is only a piece of the puzzle. IN MY MARKET we have a special use variance which permits certain commercial uses in a residential zone such as a home beauty shop, as you describe.

In most cases, the property is still residential in nature and can be appraised as such and most secondary market lenders (Fannie, Freddie, VA, and HUD) will accept the property. Disclose what you know, value the property at it's highest and best use (residential) and add an extraordinary assumption that commercial use does not have a negative impact on the value.

I wish you well.

 

[Fred]

Richard is correct in stating this is a highest and best use question.
Zoning is only a piece of the puzzle

Yes, zoning is a big piece of all HBU puzzles.

Mike, in your method, is land value estimated with residential comps or commerical comps?

 

[Greg davenport]

While doing a HUD REO, (you know HUD only lends on SFR right :lol: ) get to the property and at one point in time it had a 2nd kitchen, bedroom and bath added to it separate from the house by a breeze way. Per parcel card it is still single family, not multi family.
Then we get to the zoning.
This town has zoned everything on its main street as C-3. If it is single family it can be rebuilt as a SFR as long as it has never been commercial, but once it goes commercial it can never go back to single family.

Thought us a big lesson. Always ask just what the zoning is and for an explanation.

 

[Mike Garrett RAA]

In my case the zoning was residential with a use variance; therefore, residential comps.

 

[Jim Bearden]

First this may or may not be a H&BU issue. Second you must value the land. Then you must use the income approach which will help establish the economic viability of the improvements. The sales comparison approach can be used with caution. If you use a land to building ratio adjustment then all you prove is that the improvements have a false value, thus the importance of the income approach. H&BU is only an issue if land value exceeds improved value. It may however be an interim use because the current improvements contribute little or nothing to the site and redevelopment is not likely for several years.

 

[Richard Carlsen]

"H&BU is only an issue if land value exceeds improved value."


HBU is always an issue; an issue that must be determined before you embark on any valuation process.

 

[Mike Boyd]

Good post and follow up Mr. Garrett.

There are many examples of this type of use in residential neighoods. If you are working out of your home as an appraiser you are doing the same thing as the beautician.