Vacant Land "As Improved" HBU

[ZZGAMAZZ]

Does the fact that a vacant land parcel isn't improved preclude the "as is" component of the HBU analysis?

(Caveat: I need to attend a HBU class and I am awaiting delivery of a text on vacant land appraisals. I've read numerous appraisal texts and reviewed all of the historical threads on the AF but can't find anything that addresses this issue specifically, although it obviously goes to my lack of knowledge about HBU.)

 

[Randolph Kinney]

Does the fact that a vacant land parcel isn't improved preclude the "as is" component of the HBU analysis?

(Caveat: I need to attend a HBU class and I am awaiting delivery of a text on vacant land appraisals. I've read numerous appraisal texts and reviewed all of the historical threads on the AF but can't find anything that addresses this issue specifically, although it obviously goes to my lack of knowledge about HBU.)

No. For example, lets assume your vacant land parcel is zoned limited agriculture where you can put a residential structure, a greenhouse business or a horse property. You look around and see very little activity (lots of vacant land surround your property) and some houses with horses are within 5 to 10 miles. Your property meets current zoning and cannot be split into other lots.

What would be your first guess as to its current HBU?

 

[hastalavista]

Does the fact that a vacant land parcel isn't improved preclude the "as is" component of the HBU analysis?

(Caveat: I need to attend a HBU class and I am awaiting delivery of a text on vacant land appraisals. I've read numerous appraisal texts and reviewed all of the historical threads on the AF but can't find anything that addresses this issue specifically, although it obviously goes to my lack of knowledge about HBU.)

My answer:
If your site is vacant with no improvements, then the HBU analysis would be finished at the ready-to-be-improved stage- that is not to say the "as improved" is precluded; it is to say that it is redundant (although my distinction may not have any real practical meaning).
Remember- You are using HBU for two things in a mortgage finance transaction appraisal: To tell the lender what kind of improvement should be built on the property and as guidance in selecting your land comparables.

As with most questions, the correct answer to yours may be "it depends."
You could conceivably have a vacant lot with site improvements (grading, utility hook-ups, etc.) that do not fit the HBU. I cannot think of an example off the top of my head, but I'm sure one exists. Therefore, when discussing vacant land, it is helpful to make the distinction between raw land and site-ready.

Good luck!

 

[Vernon Martin]

Do you mean "as vacant" or "as improved"? In any case, they would be the same.

 

[ZZGAMAZZ]

1) It was a careless error for me to write "as is" when I meant "as vacant."

2) It is a professional blessing of sorts to have you guys provide insight, as always. Thanks.

 

[ZZGAMAZZ]

RK (#2):

In response to your question: I don't know the answer. Making a somewhat educated guess: It's possible that the interim use "as vacant" would be HBU because there is no local market for improvements, although it seems that agricultural crops would maximize production more so than leaving the parcel vacant. The "as vacant" or "as improved" dichotomy is very confusing. I've read several texts and they all repeat virtually the same verbiage that I find confusing.

 

[Randolph Kinney]

ZZGAMAZZ,

The way I have set up this hypothetical question of HBU of vacant land is to delineate what is the most probable and reasonable use of the vacant lot.

Since there is very little activity in the area changing vacant land to any type of allowed improvements and the majority of existing land is vacant, it would be reasonable and probable to say that this vacant lot, at this point in time, will remain vacant, ready for development of allowed uses at some future date when demand happens for developing vacant land to its HBU.

 

[ZZGAMAZZ]

Ralph et al: Pursuant to Post#7, where does "Interim Use" fit into the dichotomy? If the parcel is vacant and the "as is" and "as improved" analyses dovetail; and if there is absolutely no market for improvements, would the AV/AI use as vacant be considered "interim use"?

I've studied HBU over and over in a several texts but need an example to understand the concept. Thanks.

 

[Charles Knutson]

What are the HBU questions? Legally Permissible -- Physically Possible -- Economically Feasible.

Legally Permissible -- what does the zoning permit? Changing the zoning might be very profitable, but HBU is limited to present zoning and current permitted use.

Physically Possible -- is there access to the site? Does the terrain, geology, or access to utilities allow development?

Economically Feasible -- is there any demand for the proposed improvement on the site? Does the cost of development exceed the value of the finished improvements? What is the demand for platted residential building sites in the Inland Empire right now?

How you answer the three questions determines whether a site should be developed or remain vacant. If rezoning would result in an economic windfall, you can recommend it -- but that is not HBU, because it is not the current zoning.

 

[Randolph Kinney]

Ralph et al: Pursuant to Post#7, where does "Interim Use" fit into the dichotomy? If the parcel is vacant and the "as is" and "as improved" analyses dovetail; and if there is absolutely no market for improvements, would the AV/AI use as vacant be considered "interim use"?

I've studied HBU over and over in a several texts but need an example to understand the concept. Thanks.

Interim use is defined: The temporary use to which a site or improved property is put until it is ready to be put to its future highest and best use. An example might be where zoning allows for residential as grandfathered (zoning change of existing land use) but the zoning is now commerical. If there is a home on the lot now and it still has a positive contribution to the land (total value is greater than the land by itself, ready to be put to its highest use), it is an interim use.

The analysis has to be consistent however. Consistent use is the concept that land cannot be valued on the basis of one use while the improvements are valued on the basis of another. The concept of consistent use must be addressed when properties are devoted to temporary interim uses. Improvements that do not represent the land's highest and best use but have substantial remaining physical lives may have an interim use of temporary value, no value at all, or even negative value if substantial costs must be incurred for their removal.