Highest and Best Use

I had a man reach out to me with a question about a property he had been asked to appraise. It was being listed as a single-family home, but was clearly meant for some other use, probably as a foster type home (he mentioned in his email to me that it had 3 kitchens – one on each floor). His question was simple: is this the kind of property that I can look at, or do I need to call in someone else?

This question comes down to the principle of highest and best use. Could you bite your tongue, squint your eyes, and cross your fingers and say it was a single-family home? Sure. It was in a residential neighborhood, and could maybe be passed of as an over-build. However, if we look at the idea of highest and best use, it probably should be appraised as a foster home.

I had an experience like this when a lender called and asked me to appraise a “single-family” property in my area. It was a large, 50-acre piece of land with a house on it. This isn’t out of the ordinary in my area; in fact, it’s fairly common. However, due to zoning laws affecting that particular property, it could have been subdivided and considered a commercial property. Because commercial properties are beyond the scope of my normal work (and my license), I contacted a commercial appraiser to help me on this particular project. He agreed, and I contacted my client to let them know what the plan was moving forward.

I hear often about appraisers who just decide that a certain property is commercial or residential, etc. They make the decision of highest and best use on their own, whether they’re qualified to make that judgement or not. I encourage you to use your resources. Get to know the real-estate folks in your area, and use their expertise in situations where you might be out of your zone (ornlocense) of expertise. 

For more information on this subject, please download and listen to The Appraiser Coach Podcast Episode: 

 

1 thought on “Highest and Best Use”

  1. Often I get calls from homeowners to appraise a property that potentially has a different highest and best use than the current residential use. I explain to them why this is complex and I often get the answer, “I don’t plan to change the use, I just want a value “as is”.” My answer to that is, “Regardless of if you plan to change the use or not, real estate value comes from the present value of future uses. To know the market value “as is” and not the value in use, we must analyze it’s future potential and if that future potential exceeds the value in use, then we need comparable sales that have similar potential.”

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