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SFR SURROUNDED BY COMMERCIAL

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lisawilson

Thread Starter
Freshman Member
Joined
Jan 15, 2002
Professional Status
Certified Residential Appraiser
State
North Carolina
8O I did an inspection on a 1 bedroom 2 bath house, it is surrounded by industrial/commercial buildings. There are 2 other houses on the same street, beside the subject. All 3 are zoned residential. All surrounding areas are zoned industrial/commercial (heavy duty stuff). House was built in 1945, some updating and additions, needs some repairs. There are NO comps, with similar room count/GLA, and view/location. The owner was bragging about trying to get it re-zoned to commerical. She previously had it listed for $300K +, based on re-zoning. I don't think she will be able to re-zone with her 2 SFR neighbhors doing the same, as she is in the middle.

What do you guys/gals think is my best bet?
Thanks for your help.
 

xmrdfghap

Senior Member
Joined
Jan 15, 2002
Professional Status
General Public
State
Florida
<span style='color:brown'>Tough one to call, but unless there is re-zoning before the board, I do not see how you can include it. Also, even with three residential lots, is there adequate land for new industrial development? Or would it be simply additional yard space or parking lot?

Without more detail, I would imagine a 1 BR 2 Bath home surrounded by industrial facilities the value would be hitting close to the value of a small parking lot land minus removal of an obsolete house.

(I am assuming the lot is a lot and not a multi acre tract) Not worth too much to anyone.

Other H&B "might" be as a small business servicing industrial workers.....day care, tax prep, donut shop, taxi stand, etc. Any of which would not make $300,000. But with current zoning, it would probably not be worth the taxes being paid on it.</span>
 

Ruth Langkawel

Sophomore Member
Joined
Jan 14, 2002
If the lot were unimproved right now, but all other factors remain as is (residential on both sides) - what is the most valuable use?
If your answer is commercial, then I would recommend that they get a commercial appraisal, and charge for the time that you've spent already.

I've had a few similar properties. When zoning is still residential, and the lot is a typical small urban lot, and it is sandwiched between 2 residences - it is unlikely that the H&B as improved is commercial - unless there is a huge demand for additional commercial space. The value of the existing improvements converted to commercial/office space is typically 30%lower than the residential value in my market area.

I stop homeowners when they try to impress me with their idea of the value of their "potential commercial" property by saying - "if that's the case, and you may be right, I'm not a commercial appraiser. You will need a commercial appraiser to determine the value if this is feasible as a commercial property. This lender may not do commercial loans, you should talk to your loan officer. This was being processed as a residential loan. How is it zoned right now?" They choke on their tongues retracting their statements.
 

lisawilson

Thread Starter
Freshman Member
Joined
Jan 15, 2002
Professional Status
Certified Residential Appraiser
State
North Carolina
Thanks for the info. Each lot is between 1.2 and 1.5 acres. If lots were vacant H&B would be commercial. Immediate area is industrial park. Fast food place probably not feasible, due to the close proximity(less than 1.5 miles) to interstate and numerous fast food already there. This side of "town" is generally low to moderate income. Which is probably one of the rearsons why she didn't sell it when it was listed.
Anyway, I contacted lender, hoping they will cancel order due to lack of marketablity "as is", if they should get it back. Wish me luck. (yes they will pay for time already spent)
:roll: Lord help me from owners who know how much their house is worth!
 

George Hatch

Elite Member
Gold Supporting Member
Joined
Jan 15, 2002
Professional Status
Certified General Appraiser
State
California
Your owner only thinks they know what their house is worth. This appraisal problem is all about the highest and best use. The zoning is what the zoning is, not what it might get changed to in the future. Unless there is a pending request for zoning change and some indication that the city or county will allow the zone change. Otherwise, what you see is what you get.

So check the zoning not only for the overall classification, but also for the allowable development coverages in connection with the utilities available. It could be that your site is only suitable for use as it is currently improved; it might be possible that the existing use density (residential) could be increased to multi-family; it might also be possible that a non-residential use could be added to the existing use, creating a mixed res/commercial use; or that a larger non-residential use is possible. If this latter is the case, then the higher value as improved will either be the existing use in its "As Is" condition (appraise is as a house), or as vacant land (appraise it as land, possibly less cost to demo). Needless to say, unless your existing use is the highest and best use as improved, its gonna be tough to fit the property into a residential loan program. This might kill your Client's deal regardless of the value. Land loans typically run 50% LTV, and usually only psycho lenders like to do them.



In California, the state board has interpreted that a ResLicense/ResCertified is normally qualified to appraise a parcel of vacant land so long as they can appraise what would normally go on that site under the highest and best use. Your state may vary. Best of luck.
 

bradellis

Member
Joined
Jan 16, 2002
This is a highest and best use question, and the Consistent Use Theory applies.

The land may be worth more under a commercial use than under a residential use, BUT- will it make economic sense to tear it down and put it to another use? Remember that such a change must be reasonably probable.

If it would NOT make sense it means that the existing improvements contribute to overall value. If so, the current use is the hihgest and best use under the Consistent Use Theory- even if the dwelling only contributes a dollar.

Brad
 
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