Chapter 4: highest and best use

Question 1

“The reasonably probable and legal use of vacant land or an improved property that is physically possible, appropriately supported, and financially feasible and that results in the highest value

Answer 1

Highest and best use

Question 2

Is an opinion of highest and best use required in an appraisal that is NOT based on market value?
Yes, it is required in all appraisals
No, but it still may be necessary for credible assignment results
No, it is never required in non-market value appraisal assignments

Answer 2

No, but it may still be necessary for credible assignment results

Question 3

How are existing improvements valued in a market value appraisal assignment?
based on their cost
using sales comparison
based on an extraordinary assumption
based on their contributory value to the land

Answer 3

based on their contributory value to the land

Question 4

all of these statements concerning Fannie Mae’s position on highest and best use is true, except for
If the use of comparable sales demonstrates that the improvements are reasonably typical and compatible with market demand for the neighborhood, and the present improvements contribute to the value of the subject property so that its value is greater than the estimated vacant site value, the appraiser should consider the existing use as reasonable and report it as the highest and best use.
If the current improvements clearly do not represent the highest and best use of the site as an improved site, the appraiser should stop and not complete the appraisal report.
Fannie Mae will only purchase or securitize a mortgage that represents the highest and best use of the site as improved.
The appraiser’s highest and best use analysis of the subject property should consider the property as it is improved.

Answer 4

If the current improvements clearly do not represent the highest and best use of the site as an improved site, the appraiser should stop and not complete the appraisal report.

Question 5

It is a requirement to develop an opinion of the highest and best use of a property:
in eminent domain appraisal assignments only
if the property has improvements
if the property has not had improvements
in market value appraisal assignments

Answer 5

in market value appraisal assignments

Question 6

The market value of the land is always determined based on:
its current use
its highest and best use
the Sales Comparison Approach
a current date

Answer 6

the highest and best use

Question 7

The two types of highest and best use analysis are:
as vacant and as improved
as is and subject to proposed improvements
illegal and legal
complete and limited

Answer 7

as vacant and as improved

Question 8

The first step in developing an opinion of highest and best use for the land is to determine the value of the land as if it is

Answer 8

vacant

Question 9

When testing for highest and best use, which two criteria (or tests) are applied first?
physically possible and financially feasible
legally permissible and physically possible
legally permissible and financially feasible
financially feasible and maximally productive

Answer 9

legally permissible and physically possible

Question 10

A single-family homesite is worth $40,000. The owner plans to build a 4,000 square foot home on it, at a cost of $600,000. When it is completed, the property will be worth $620,000. Which statement is TRUE regarding the proposed 4,000 square foot home?
It is not physically possible
It is not legally permissible
It is not financially feasible
It is financially feasible

Answer 10

it is not financially feasible

Question 11

Which highest and best use criterion would require an appraiser to consider the need for the land use, or how many similarly-used land areas are in the market area?
physically possible
legally permissible
financially feasible
maximally possible

Answer 11

financially feasible

Question 12

Which highest and best use criterion would require an appraiser to consider the availability of public utilities to a site?
physically possible
legally permissible
financially feasible
maximally productive

Answer 12

physically possible

Question 13

An appraiser is analyzing a parcel of vacant land, on a back road in a rural area. The owner tells the appraiser he plans to build a fast-food restaurant on the land. There is no zoning, and no other significant land use restrictions. The appraiser determines the highest and best use is NOT to build a fast food restaurant. What is the most likely reason for this conclusion?
it is not physically possible
it is not legally permissible
it is not financially feasible
none of the above

Answer 13

it is not financially feasible

Question 14

Which highest and best use criterion would require an appraiser to consider the shape of the site?
physically possible
legally permissible
financially feasible
maximally productive

Answer 14

physically possible

Question 15

Which highest and best use criterion would require an appraiser to consider excavation or filling that may be required in order for a site to accommodate an improvement?
physically possible
legally permissible
financially feasible
maximally productive

Answer 15

physically possible

Question 16

In highest and best use analysis, how do we determine maximum productivity?
the use that results in the highest property tax
the use that results in the highest land value
the use that is the most acceptable to local residents
the use that is acceptable to the local zoning board

Answer 16

the use that results in the highest land value

Question 17

Only those uses which produce a positive return are considered \_\_\_\_\_\_\_\_\_.
physically possible
legally permissible
financially feasible
socially acceptable

Answer 17

financially feasible

Question 18

If the improvements have a negative value, an appraiser must consider \_\_\_\_\_\_\_\_\_\_ in the feasibility analysis.
published cost manuals
demolition cost
loss of income
reproduction cost

Answer 18

demolition cost

Question 19

Which highest and best use criterion would require an appraiser to consider minimum lot sizes and height restrictions imposed by a local municipality?
physically possible
legally permissible
financially feasible
maximally productive

Answer 19

legally permissible

Question 20

Which highest and best use criterion would require an appraiser to consider the need for the land use, or how many similarly-used land areas are in the market area?
physically possible
legally permissible
financially feasible
maximally possible

Answer 20

financially feasible

Question 21

Which highest and best use criterion would require an appraiser to consider private deed restrictions?
physically possible
legally permissible
financially feasible
maximally productive

Answer 21

legally permissible

Question 22

Who would be the most likely purchaser for a multi-use property?
a speculator who converts the property to a single use
a residential owner-occupant
an investor
any of these

Answer 22

investor

Question 23

Land that is larger than typical for the area, larger than what is required for the subject's use, and is capable of being sold for a separate use is:
excess land
surplus land
non-conforming land
interim land

Answer 23

excess land

Question 24

What often happens when a special purpose property, like a school, is abandoned?
its useful life has ended
it is demolished
it becomes an illegal use
it will be put to an alternative use

Answer 24

it will be put to an alternative use

Question 25

A parcel of vacant land is located in a blighted area where there is no demand for land. Which statement is TRUE?
Vacant property has no highest and best use.
The highest and best use may be to remain vacant.
The highest and best use of a property requires improvement with some type of building or structure.
If the appraiser looks hard enough at the market, he/she will find that there is a demand for land.

Answer 25

highest and best use may be to remain vacant

Question 26

A sports arena with restaurants and retail shops on the lower level would best be described as what type of property?
non-conforming use
interim use
multiple use property
illegal use

Answer 26

a multi use property

Question 27

"A use that is lawfully established and maintained, but no longer conforms to the use regulations of the zone in which it is located" is the definition of what term?
Highest and best use
Interim use
Illegal use
Legally nonconforming use

Answer 27

legally non conforming

Question 28

A single-family residence is located in a commercially-zoned area. Residential sale prices in the area range from $80-90 per square foot. The residence could be converted to offices at a cost of $25 per square foot. Office space in this area is selling at $90-100 per square foot. What is the highest and best use of this property?
convert the residence into offices
raze the residence and build a new office
continue use as a single-family home
determine what the owner wants to do with the property

Answer 28

continue use as a single family home

Question 29

A property is currently zoned for agricultural use, but its highest and best use is expected to change to commercial use within the next 3-5 years. The subject property's current use is considered:
special purpose
interim use
illegal use
legal, non-conforming use

Answer 29

interim use

Question 30

A single-family home is situated on a commercially-zoned lot. It would not be financially feasible to convert the home to commercial use, because there is not enough demand for commercial properties at this time. Demand for industrial property is very strong; however, a zoning change is unlikely. Demand for commercial properties is expected to increase as the community grows. What is the ultimate highest and best use for this property?
Industrial use
Commercial use
Recreational use
Not enough information has been provided

Answer 30

commercial use

Question 31

A residential dwelling which is a legal nonconforming use in a commercial area would be considered:
under-improvement
over-improvement
illegal use
mixed use

Answer 31

under improvement

Question 32

Land that is larger than typical for the area, but cannot be separated and used effectively and is not capable of a separate use, is:
excess land
surplus land
non-conforming land
interim land

Answer 32

surplus land

Question 33

A property has two acres, in an area where one-acre lots are common. There is a home built on the property at one corner. The property is situated in such a way that one acre could be sold off and developed without affecting the existing homesite. This would be considered \_\_\_\_\_\_\_\_\_\_\_ situation.
a surplus land
an excess land
an interim use
a non-conforming land

Answer 33

excess land

Question 34

A commercial building which is a legal nonconforming use in a residential neighborhood would be considered:
under-improvement
over-improvement
illegal use
none of the above

Answer 34

over improvement

Question 35

Which of these would be considered special purpose properties?
fire stations
school buildings
places of worship
any of these

Answer 35

any of these

Question 36

A single-family home is situated on a commercially-zoned lot. It would not be financially feasible to convert the home to commercial use, because there is not enough demand for commercial properties at this time. However, demand is expected to increase as the community grows. Which statement is TRUE regarding this situation?
The home should be razed.
The highest and best use of the property is mixed residential and commercial use.
Single-family use is an interim use.
Commercial use is the highest and best use.

Answer 36

single family use is an interim use

Question 37

A single-family residence is located in a commercially-zoned area. Residential sale prices in the area range from $100-110 per square foot. The residence could be converted to offices at a cost of $20 per square foot. Office space in this area is selling at $135-150 per square foot. What is the highest and best use of this property?
convert the residence into offices
raze the residence and build a new office
continue use as a single-family home
determine what the owner wants to do with the property

Answer 37

convert the residences into offices

Question 38

Land that is larger than typical for the area, but cannot be separated and used effectively and is not capable of a separate use, is:
excess land
surplus land
non-conforming land
interim land

Answer 38

surplus land

• not large enough to satisfy zoning requirements
• no adequate access
• cannot be separated and used effectively

Question 39

A property has one acre, in an area where half-acre lots are common. There is a single-family home located at one end of the property, and is situated in such a way that a half-acre site could be sold off and developed without affecting the existing homesite. Which statement best describes this situation?
The subject property is an interim use.
The subject property is a legal non-conforming property.
This is a surplus land situation.
This is an excess land situation.

Answer 39

an excess land situation

Question 40

An appraiser's highest and best use conclusion is always:
a fact
an opinion
an assumption
an educated guess

Answer 40

an opinion

Question 41

A single-family residence is located in a commercially-zoned area. Residential sale prices in the area range from $100-110 per square foot. The residence could be converted to offices at a cost of $20 per square foot. Office space in this area is selling at $135-150 per square foot. What is the highest and best use of this property?
convert the residence into offices
raze the residence and build a new office
continue use as a single-family home
determine what the owner wants to do with the property

Answer 41

convert the residence into offices

It would be financially feasible and maximally productive to spend $20 per square foot converting the home into offices, with a return of at least $25, and possibly $50. There is no evidence that razing an existing improvement that is worth $100-110 per square foot is financially feasible either. The owner’s individual plans and goals have no bearing on the highest and best use.