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Highest and Best Use

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					               Highest and Best Use
                                or
                         Most Probable Use



Wayne Foss, MBA, MAI
Wayne Foss Appraisals, Inc.
Email: wfoss@fossconsult.com                 1
 Definition
The reasonably probable and legal use of vacant
 land or an improved property, which is
 physically possible, appropriately supported,
 financially feasible, and that results in the highest
 value.
Note:
   Physically possible
   Legally permissible
   Financially feasible
   Results in the highest value                     2
 Applies to:

LAND or SITE as though vacant

  and the

PROPERTY as presently improved



                                  3
 Note:
The “best use” is estimated
the indicated use comes from the market
is subject to limitations of
  physical nature
  legal nature
  economic nature
is time sensitive; dynamic and may change
 over time
                                             4
             Purpose and Use
To help identify the market within which to
 subject competes
To help identify comparable and competing
 properties for use in the Sales Comparison
 approaches for both Subject Site and Total
 Improved Property
To help identify points of depreciation and
 obsolescence
To help identify alternate uses
                                               5
 Purpose, Uses - - continued…...
To help understand the competitive market
  How competitive
  Prices
  Liquidity, how long to sell property
  Who are the participants
  What influences them
  Trends
To help identify most effective marketing,
 promotion, and financing
To better understand the timing in the market,
 when uses are premature or past due.
                                                  6
 The Process of Analysis
1. What uses are LEGAL
  Public restrictions, zoning
  Private use restrictions
Outlook for change in legal uses
What is permitted affects productivity, market
 appearl, competitiveness - and thus probable
 price and value.


                                              7
 The Process of Analysis --
 continued…..
2. Of the legal uses, identify the
 PHYSICALLY POSSIBLE USES.
Consider for the site:
  size, configuration, slope, topography, etc.
Consider for improved property:
  building condition, design, layout, utility,
   outlook, parking, access, obsolescence


                                                  8
 The Process of Analysis --
 continued…..
3. Of the legal and physically possible uses,
 which uses are economically possible,
 sensible, or financially feasible.
  What uses produce property worth more than
   cost?
  What uses produce competitive return
   considering risk?
What is being built, and succeeding in the
 market area?
                                                 9
 The Process of Analysis --
 continued…..

4. Of the uses that are legally permitted,
 physically possible and financially feasible
 identify the uses(s) most profitable or that:
 produce the greatest rate or money amount of
 return, or
results in the highest value


                                             10
 Estimating Highest and Best Use
 involves . . .
A “filtering process” after:
Analysis of the appraised property
Analysis of the market
  supply and demand of comparable and competing
   and alternative properties.
The result of the analysis must answer several
 questions . . . . .


                                               11
 Estimate of Highest and Best Use
 results in several conclusions
Who is the next BUYER likely to be - what
 type, motivation, planned use, source of
 funds, and from where.
Who is the next USER likely to be - what use,
 for how long a term, nature of business or
 activity
What productivity is expected from the
 property
                               continued
                                             12
Estimate of Highest and Best Use
results in several conclusions

What is the expected USE
What is the expected timing - i.e.
  when ready for that use?
  How long will it last, duration

and for the improvements, specifically...



                                             13
Estimate of Highest and Best Use
results in several conclusions

For the Highest and Best Use of the Property
 as Improved, the outlook for the
 improvements is:
  No change?
  Repair?
  Remodeling?
  Renovation?
  Replace improvements with - - - - ?
                                            14
Highest and Best Use

The present use is presumed to be the highest
 and best use unless the appraiser can show the
 logic and probability of reasonable change
 based on market evidence.
What is the market saying?
Remember… The highest and best use
 conclusion needs the following:
                                              15
 Special situations
Single Use
  demand might exist for only one property with
   this use
Interim Use
  highest and best use may change in the
   foreseeable future
  interim use may or may not contribute to the
   value of the site


                                                   16
 Special situations …continued...
Legally nonconforming use -
  a use that was lawfully established, but now is
   nonconforming to current regulations
  zoning may create underimproved or
   overimproved properties
Multiple uses
  H&BU may include more than one use for a
   parcel


                                                     17
Highest and Best Use

Estimate, with support, the most probable
  Use
  User
  Buyer
  Timing



                                             18
                               So That’s
                       Highest and Best Use




Wayne Foss, MBA, MAI, Fullerton, CA USA
Phone: (714) 871-3585 Fax: (714) 871-8123
Email: wfoss@fossconsult.com                  19

				
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posted:9/14/2011
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