Appraisal - Highest and Best Use Flashcards
Zero economic life
- Not at the highest and best use
- No longer contribute values
- Structure has higher and better use or should be converted
Highest & Best Use (factors)
Ideal Use of the Site, not type or size of the improvement
Legally Permissible (zoning, private/public limitation)
Physically Possible (size)
Financial Feasible
Most Profitable
Modernization
Update a property to meet the current expectation of the typical buyer.
*remodeling and renovation may be executed without buyer’s expectation
Land should be analyzed as if vacant & ready for development
Sites should be valued on potential (highest and best use, 4 agents) rather than current use.
Land
Do not depreciation or waste away
Highest and Best Use (4 agents)
C - Capital
E - Entrepreneurship
L-Land
L-Labor
What is next after data collection and property description?
The highest and best use
Legal permissible
zoning
public and private limitation/restrictions
Physical possible
size
Development
Highest & Best use for development ->
determine what type of improvement should be built
Value>Improved+demolish cost
Highest and Best Use = Vacant
Should demolish the house
Long Term Lease
Affect highest and best potential of the property, commitment may limit a more profitable use
Interim use case
Residential use -> commercial
Land cannot be valued based on one use and improvement valued based on another.
The principle of consistent use
Intended Use
Credibility
Market warrants a 10% return for completing deferred maintenance
Recommended Value = Value of the property x 110% (1.10) - deferred maintenance cost
Most profitable use
- NOT on public use
2. Can be profitable if zoning does not allow the ideal use
Highest & Best Use (primary purpose)
to establish the contributory value of the improvements
Well-kept houses surrounded by well-kept houses
- Highest and Best Use
2. Conformity
Excess land
Stand alone highest & best use
Unneeded land
Surplus land
No Stand alone highest & best use
Result of having too much land, connected with law of decreasing return
The Principle of Comformity
Physical characteristic
*least important to financial feasibility
Standard 2-2
Summarized report
highest & best use conclusion must be summarized
Illegal Income Units
4 units of income stream cannot be developed in income approach
Financial feasibility
External Obsolescence
Highest and Best Use
Market Value
Financial and economical analysis of the subject property
