Week 5 HBU Flashcards
define highest and best use
The process of identifying “the reasonably probable and legal use of vacant land or improved property, which is physically possible, financially feasible, and that results in the highest value as of the date of the examination”
typical land uses
Residential Commercial Industrial Retail Agricultural Speciality properties (e.g. recreational properties, education, medical)
when is HBU performed / needed
In property valuations
Is the current use its HBU?
Property is always valued on the basis of its HUB, which may or may not be its present use.
In property development decision making
What is the best potential use on the development site considered?
Applications of HBU
land or site analysis (usually vacant)
improved property analysis (existing)
explain hbu in site analysis
HBUA is mainly for site analysis.
Extremely important in site valuation as the MV estimate depends entirely on the nature of its anticipated use
should be left vacant
extensions
what should be built
timing
test criteria in HBUA
Legally permissible
Physically possible
Financially feasible
Maximally productive
When the analysis of the property as improved is conducted, the focus is on three possibilities:
Continuation of the existing use
Modification of the existing use
Demolition and redevelopment of the land
The present use is presumed to be the HBU unless the valuer can show the logic and probability of reasonable change based on market evidence.
Analysis is much more difficult because of the existing improvement.
To keep or to demolish (alter), that is the problem
Market analysis and four steps of HBU
Problem Definition
Economic Overview and Alternative Use of Scoping
Market/Marketability Analysis
Four tests
Financial Analysis
Conclusion
define market anaylsis
a process for examining the demand for and supply of a property type and the geographic market area for that property type
Define markability analysis
a process that investigates how a particular piece of property will be absorbed, sold, leased under current or anticipated market conditions (includes a market analysis)
explain improved site value costs
Most of the time the H&B use of a property as improved (as currently developed) is the current use.
This is because the cost of construction and demolition being higher than the cost of construction alone and also the opportunity cost of time for the conversion
In case of long-term project, time value of money exacerbate the difficulties.
Loss of income during construction
demolition and site prep costs
Existing building value
explain interim uses
The use to which a site or improved property is put until it is ready for its future HBU
Interim use is the current HBU
Example:
If a 10-acre parcel is zoned R1, the ultimate HUB would be single family homes.
There are already hundreds of residential lots on the market with little or no demand
Interim use could be agricultural use.
explain legally non conforming
A use that was lawfully established, but now is nonconforming to current regulations
(E.g. an automotive repair shop in the middle of a residential neighbourhood)
Future
Permit a pre-existing use to continue but prohibit expansion or major alterations
Sometimes neighbouring property owners can bring enough political pressure to abate the nonconforming use
