AG HBU Part 14. Considerations in Highest and Best Use Analysis

Question 1

A duplex apartment is located on a 0.50-acre site zoned for office. An appraiser identifies three alternative uses, as follows:
ƒ Continue the duplex use, which brings net operating income of $12,000 per year. The capitalization rate for the duplex use is 5.5%.
ƒ Convert the duplex to a two-suite office building at a cost of $75,000 (including entrepreneurial incentive). The net operating income would increase to $24,000. The capitalization rate for the converted office building would be 7.5%.
ƒ Demolish the duplex. If vacant, the site would have a value of $13.50 per square foot as an office site. Demolition cost is $15,000.

What is the highest and best use of the property?
A. continued use as a duplex
B. conversion to a two-suite office building
C. demolition
D. cannot be determined without additional information

Answer 1

C. demolition

Value (duplex use): $12,000 ÷ 0.055 = $218,182
Value (office conversion use): $24,000 ÷ 0.075 = $320,000 − $75,000 = $245,000 Value (demolition scenario): 43,560 × 0.50 × $13.50 = $294,030 − $15,000 = $279,030

Course handbook guidance: Part 14, item V

Question 2

A duplex apartment is located on a 0.50-acre site zoned for office. An appraiser identifies three alternative uses, as follows:
ƒ Continue the duplex use, which brings net operating income of $12,000 per year. The capitalization rate for the duplex use is 5.5%.
ƒ Convert the duplex to a two-suite office building at a cost of $75,000 (including entrepreneurial incentive). The net operating income would increase to $24,000. The capitalization rate for the converted office building would be 7.5%.
ƒ Demolish the duplex. If vacant, the site would have a value of $13.50 per square foot as an office site. Demolition cost is $15,000.

What is the contributory value of the improvements?
A. −$76,000
B. −$15,000
C. $0
D. $36,000

Answer 2

B. −$15,000
(negative value contribution due to the need to demolish)

Course handbook guidance: Part 14, item III.B

Question 3

A 60,000-square-foot medical office building only partially utilizes its 9.0-acre site.
It measures 30,000 square feet on each of its two floors. The required parking is 5.0 spaces per 1,000 square feet of building area, and each parking space requires 375 square feet excluding landscaping. Landscaping requirement is 30,000 square feet. A 2.0-acre area facing a side street could be legally subdivided and sold off; the remainder cannot be legally subdivided. What is the amount of surplus land?
A. 2.35 acres
B. 3.04 acres
C. 3.72 acres
D. 5.04 acres

Answer 3

B. 3.04 acres

Total site area (9.0 × 43,560) = 392,040
Building main floor (30,000)
Parking requirement (60,000 sq. ft. ÷ 1,000 × 5.0 × 375) = (112,500)
Landscaping requirement (30,000)
Excess land (43,560 × 2.0) =(87,120)
Surplus land (sq. ft) = 132,420
Surplus land (acres) = 3.04

Course handbook guidance:
Part 14, item VI

Question 4

Land that is unnecessary to support the existing use and that has the potential to be sold separately and may have its own highest and best use is xxx land.

Answer 4

excess

Review Quiz

Question 5

Land that is unnecessary to support the existing use but cannot be separated and sold off is xxx land.

Answer 5

surplus

Review Quiz

Question 6

The principle that value is created and sustained when contrasting, opposing, and interacting elements are in a state of equilibrium is the principle of xxx .

Answer 6

balance

Review Quiz

Question 7

The concept that land cannot be valued on the basis of one use while the improvements are valued on the basis of another is called xxx.

Answer 7

consistent use.

Review Quiz

Question 8

The decision process for the highest and best use of an improved property must include three alternatives: xxx , xxx , and xxx of the property.

Answer 8

conversion , renovation , and alteration

Review Quiz

Question 9

The improvement that takes maximum advantage of a site’s potential is the xxx .

Answer 9

ideal improvement.

Review Quiz