USPAP Standard 1-3(b) and Standard 2-2 (a)(xii) question

[OG80]

Highest and best use lack of comments is one of the big ones this state like to hit you over the head with a fine.
I mostly do big urban little row homes. So seen one, seen them all. I have a separate page with highest and best use comments, easier to find in my table of contents. Some of this was gotten from the appraiser's scope of work book and other brilliant thinking here by posters.

Site/Zoning/Use:

In order to determine the highest and best use of the real estate, I completed a survey of the market, noted supply and demand factors, and examined the feasibility of alternative uses. The appraisal problem did not warrant an intensive highest and best use study. Given the nature of the subject real estate, my conclusion of highest and best use was based on logic and observed evidence.

Zoning ordinances and deed restrictions (if applicable) were evaluated to determine legal uses. Economically feasible and physically possible uses of the subject property were considered as well. The subject property was evaluated "as if vacant" in order to determine uses that would produce some return and the one use (existing or alternate), that would produce the highest net return. Neighborhood development patterns and commercial potential were considered in all unincorporated areas. The highest and best use conclusion noted on this report was consistent with all of the above considered factors. The noted highest and best use is considered reasonably probable, legal, possible, appropriately supported, financially feasible, and results in the highest value."

Lot is typical of others nearby, similar homes on each side. Residential street views. Normal utility easements. No apparent adverse conditions present. The current restricted zoning of the subject, it's location, and locational influences make the highest and best use as single family, residential. Dwelling could be rebuilt back as is after a fire. The subject is a legally permissible use based on its current zoning. Also, the lot size, shape and land-to-building ratio allow the present structure and indicate a good utilization of the improvements. Based on current market conditions, the existing structure as a single family residence is its financially feasible and maximally productive use. The highest and best use, as if vacant, would be to construct a single family residence.


There are five residential single-family attached (RSA) district types. RSA districts are intended to accommodate attached and semi-detached houses on individual lots, but can be applied to a mix of housing types. RSA-1 requires the largest lot size and setbacks. These minimum lot and setback requirements decrease for RSA-3 and RSA-5 districts. The districts are also intended to provide a density transition between RSD districts and RM districts. The zoning code includes five RSA districts that are differentiated primarily on the basis of minimum lot sizes.


Because building codes change from time to time and tend to reflect higher standards and improved technology, an important feature of building codes is that they apply only to new construction and are not applied retroactively to existing buildings. The subject is an existing improvements and per the zoning ordinance does not have to meet the requirements of a new property. The subject was permitted and approved at the time of construction, the use has not changed, therefore the subject is considered to be conforming to the current zoning ordinance per the grandfather clause section of the current zoning ordinance.

Nonconforming Lots:
Minimum R zoning residential lot size in the city is 1,440 Sf. Lower Sf nonconforming lots are common throughout Philadelphia where the typical house predates zoning and maybe situated on a substandard size lot. This has no adverse affect on marketability or value. If the subject were destroyed, the improvement could be rebuilt to its current foot print (subject to city issuance of applicable building permits). Such subject sites were permitted and approved at the time of construction, the use has not changed, therefore the subject is considered to be conforming to the current zoning ordinance per the grandfather clause section of the current zoning ordinance.

Thank you very much for this. I might use some of it if that's ok.

 

[Tim Hicks (Texas)]

Thank you very much for this. I might use some of it if that's ok.

Go to the TALCB appraiser sanctions pages. On many of them they have the USPAP violation of failing to summarize the highest and best use in the report.

 

[Surf Cat]

Yep, said they read my statement but wanted more 'detail'.

Out of curiosity, what was your H&B use comment? What type of assignment is this?

 

[OG80]

Out of curiosity, what was your H&B use comment? What type of assignment is this?

1004 Refi. Besides the attached pic of what is in the report, I also put in this:
Based on the analysis of physical possibility, legal permissibility, financial feasibility, and maximum productivity, the highest and best use of the property is single-family residential development. The property is located in an established residential neighborhood with consistent demand for single-family homes. Comparable sales indicate strong market demand, with similar properties selling at a Median price of $XXXXX.

 

[George Hatch]

I think the question should ask if there is a different use that passes the four test and in most cases it will be financially feasible that is answered no. Which is why the HBU as improved is as-is.

The comment I add is "there is no legal use which would economically justify replacing the existing improvements. " Which will be true when comparing a more expensive improved property with a vacant property of otherwise similar attributes.

S#1 is a 7000sf lot zoned R1 with no improvements. Sold for $100k due to its respective comps.
S#2 is a 7000sf lot zoned R-1 with an 800sf SFR in beater condition. Sold for $105k due to its respective comps.

I'm obviously exaggerating the example to illustrate the application. At such a small difference in price they're both feasible for development, albeit at different profit margins. But "feasible" isn't the end stage of an HBU analysis.

Everything else being equal, S#1 will be the more profitable acquisition for a builder and S#2 will be the more profitable acquisition for the homebuyer. If there are enough S#1s around the builders will not need (ergo no economic justification) to buy S#2.

Not to mention the effects of the available financing rates/terms for each, which in turn affect the cumulative holding costs on a monthly payment basis.

If all the beater SFRs that S#2 is competing with are being purchased and financed as SFRs and not as land sales then there is no reason to conclude that the HBU/improved for S#2 is as a land sale.

 

[Tom D]

Thank you very much for this. I might use some of it if that's ok.

The brilliance of you and me is being on this blog to get the right comments the first time. Lotta smart people here.

You also have to be armour skinned when we hit you also.

And you have to understand that most of the time it's 50/50 on any topic.

 

[OG80]

The brilliance of you and me is being on this blog to get the right comments the first time. Lotta smart people here.

You also have to be armour skinned when we hit you also.

And you have to understand that most of the time it's 50/50 on any topic.

Yep. Could not agree more. Thx

 

[sputnam]

Received this in a revision "The USPAP standards is required for all assignments, justification and analysis must be conducted and shown for each of the 4 principles".

Anybody have some examples of what they are asking for on this?

First thing I'd do is ask them exactly which USPAP Standard they think I haven't complied with. If it is HABU, the reviewer is wrong. If an assignment is for market value then, the Highest and Best Use must be stated in the report. If the Highest and Best Use is stated in the report, then USPAP requires that the report include comments that summarized the support and rationale for the opinion of Highest and Best Use. You cant just restate the definition of HABU or restate that the HABU is what you marked (for form appraisals). You need to provide some explanation regarding why you reached the conclusion you reached. It should be tailored for the subject property... in other words.. don't boilerplate it. It doesn't have to be complicated or take up a lot of space. If it's true for the subject property, "Based on current zoning and surrounding development, the Highest and Best Use of the subject is concluded to be its present use as a single family dwelling." might be enough. In some cases, you may need to say more.

 

[Tom D]

I do big urban row homes. Thank goodness i have 1 boilerplate HABU page saying, you seen this row home, yous seen all of them. But then, as i posted earlier i think my boilerplate comments have seemed to make everyone happy. Basically the only thing that changes is the zoning classification and it definition which primarily affects use around here.