Presented By: Tim Wilmath, MAIPrepared For: HCPA Staff

Simple definition of Highest and Best Use

“What most people would do, most of the

time.”

Most people would not build a high-riseoffice on agricultural land in Wimauma.

Most people would not grow crops oncommercial land downtown.

Most people would build a single family home in a residential subdivision.

Why bother with Highest and Best Use?

USPAP Standards Rule 1-3(b)

“When necessary for credible assignment results in developing a market value opinion, an appraiser must develop an opinion of the highest and best use of the real estate”

193.011 Factors to consider in deriving just valuation.—In arriving at just valuation as required under s. 4, Art. VII of the State Constitution, the property appraiser shall take into consideration the following factors:

1. Present Cash Value2. Highest and Best Use3. Location4. Quantity or size5. Replacement cost6. Condition7. Income 8. Cost of Sale

Florida Statutes 193.011 - Eight Criteria

193.011 (2) The highest and best use to which the property can be expected to be put in the immediate future and the present use of the property, taking into consideration the legally permissible use of the property, including any applicable judicial limitation, local or state land use regulation, or historic preservation ordinance, and any zoning changes, concurrency requirements, and permits necessary to achieve the highest and best use, and considering any moratorium imposed by executive order, law, ordinance, regulation, resolution, or proclamation adopted by any governmental body or agency or the Governor when the moratorium or judicial limitation prohibits or restricts the development or improvement of property as otherwise authorized by applicable law. The applicable governmental body or agency or the Governor shall notify the property appraiser in writing of any executive order, ordinance, regulation, resolution, or proclamation it adopts imposing any such limitation, regulation, or moratorium;

Why does Highest and Best

Use matter?

Highest and Best Use determines the selection of comparables...

This might be the most important slide today!

There are two types of Highest and Best Use

As-Vacantand

As-Improved

Test of Highest and Best Use

Subject Property is a 10 Acre sitein Brandon.

What’s the Highest and Best Use of this site?

Single Family Home, Warehouse,

Service Station, Conv/Store, Bank, School, Office Building,Restaurant, Regional Mall,

Duplex, Beauty Salon, Church,

Amusement Park, Townhouse, Manufacturing

Plant, Condo,Retirement Home, Hotel,

Stadium, Power Plant, Mobile Home Park, Hospital,

Drugstore, Golf Course, Apartment Project.

Subject Property is a 10 Acre sitein Brandon.

Single Family Home,Warehouse,

Service Station, Conv/Store, Bank, School, Office Building,Restaurant, Regional Mall,

Duplex, Beauty Salon, Church,

Amusement Park, Townhouse, Manufacturing

Plant, Condo,Retirement Home, Hotel,

Stadium, Power Plant, Mobile Home Park, Hospital,

Drugstore, Golf Course,Apartment Project.

Subject Property is a 10 Acre sitein Brandon zoned Residential/Multifamily.

Single Family Home, Duplex, Church,

Townhouse,Condo, Retirement

Home, Hotel, Apartment Project.

Subject Property is a 10 Acre sitein Brandon zoned Residential/Multifamily.

Retirement Facility

Expected Sale price: $3,000,000Cost to construct : - 2,450,000Profit: $ 305,000___________________________

Hotel

Market Value: $2,300,000Cost to construct : 1,840,000Profit: $ 460,000

____________________________

Apartment Complex

Market Value: $5,500,000Cost to construct : - 4,950,000Profit: $ 550,000

Subject Property is a 10 Acre sitein Brandon zoned Residential/Multifamily.

Retirement Home, Hotel, Apartment Project.

So the ideal comps to valuethis 10-acre vacant sitewould be sales of other

Multifamily sites, preferably in Brandon.

Subject Property is a 10 Acre sitezoned Multifamily in Brandon.

In Mass Appraisal Highest and Best Use is accomplished

through coding•Property Use• Land Use• Building Use• Zoning • Land Size• Frontage• Depth• Special Features

What does that mean??

Using coding, similar properties are “linked”. When any of those properties sell, they will be used to value properties with similar coding.

A vacant site coded with a residential land use will be valued using sales of properties that have similar coding.

Before I forget!!!!!

We value all land as if vacant.We value all land as if vacant.We value all land as if vacant.We value all land as if vacant.We value all land as if vacant.We value all land as if vacant.

(What is built on the land does not increase or decrease the

land value)

Highest and Best UseAs-VacantExamples

Folio 133429.0000South Tampa – one lot in from Dale Mabry

Zoned CG – CommercialWhat is the highest and best use as-vacant?

Folio 133429.0000South Tampa – one lot in from Dale Mabry

Zoned CG – Commercial

In a perfect world, we would have salesof commercial zoned

sites on residential streets.

But without those sales,how should we value this?

Dale Mabrycommercial sales?

Residential lot sales?An average of both?

Folio 167784.0000Busy Thoroughfare - MLK – Zoned RS-50

What is the highest and best use as-vacant?

Folio 167784.0000MLK – Zoned RS-50 Residential

What is the highest and best use as-vacant?

What does the Appraisal of Real Estate say about assuming a zoning change?

“It is possible and logical for an appraiser to select a highest and best use not allowed under current zoning if market conditions, trends, activities or opinions of knowledgeable people (the zoning director, for instance) indicate a change of zoning is likely. An appraiser should not assume a zoning change is likely, however, without substantial evidence to support such a conclusion.”

What have the courts said about assuming a zoning change?

Speculation as to zoning change was improper: Williams v. SimpsonFlorida Rock Industries, Inc. v. BystromBal Harbor Club, Inc. v. Dade Cnty.Keith Investments, Inc. v. JamesR-C-B-S Corp. v. WalterStraughn v. TuckSt. Joe Paper Co. v. Atkinson

 May assume zoning if likelihood exists:Broward Cnty. v. PatelUnited States v. Meadow Brook Club

Highest and Best Use As-Improved uses the same test!

With H&B Use As improved, we are trying to decide: 1.Continue the existing use?

2. Modify the existing use?

3. Demolish the existing improvements and redevelop the site? 

In most cases, the Highest and Best Use as As-Improved is the

current use

What is the highest and best use of a 3-story office building in downtown Tampa where condo development has become very profitable?

H&B Use as Improved Most of the time the H&B use of a property as

improved is the current use.

This is because the cost of conversion to something else can be very expensive.

New market value as condos

Existing Building Value

Construction Cost and Marketing

Lost income during conversion

In 2005-2006 many apartment complexes were converted to condos in

Hillsborough County

. Why? . * Higher price as a condo * Captive Audience

* Flipping

* Hot Real Estate Market

In late 2006 - Early 2007the bottom fell out of the condo craze

Many converted condo projects did not sell out and they reverted to leasing the

unsold units. This created new terms like “Fractured Condos”

Tax reps for Fractured Condos sought assessment reductions based on rental value instead of sales of condo units.

What is the highest and best use of a fractured condo unit?

The use that is “maximally productive” or put another way, the use that brings the highest price.

Folio 114399.0000Vacant Former Borders Bookstore

What is highest and best use as-improved?

Folio 114399.0000Former Borders Bookstore

The physical changes to the building changed highest and best use.

Folio 068067.0000Warehouse recently occupied by a fitness center

A change in the occupant does not necessarily change the highest and best use (or the DOR code

and building use).

Folio 142807.01208416 Barrett Pl. – Assisted Living Facility

Folio 142807.01208416 Barrett Pl. – Assisted Living Facility

Building write-offFolio 0113293.0000

Sometimes highest and best use is obvious

Building write-offFolio 204784.0000

Southern Hospitality Furniture and Decor

Just because a property is being used, Doesn’t mean it’s the highest and best use

Building write-offFolio 204784.0000

Southern Hospitality Furniture and Decor

Land Value = $875,982Income Approach = $726,200

1. Continue the existing use?

2. Modify the existing use?

3. Demolish the existing improvements and

redevelop the site?

If the value of the entire property via the income approachdoesn’t exceed land value, what is the highest price that you would pay for this property?

The Highest and Best Use of a Drugstore is……..a Drugstore!

(not “general retail” like an auto parts store, used furniture store, kitchen store, etc.)

“The functional utility (hence the H&B use) of a special-purpose building depends on whether or not there is continued demand for the use for which the building was designed”

Source: The Appraisal of Real Estate, 14th Edition, (Appraisal Institute, 2013) pg. 269

What is the highest and best use of a drywall manufacturing plant (folio 051479.0000)?

“The functional utility (hence the H&B use) of a special-purpose building depends on whether or not there is continued demand for the use for which the building was designed”

Source: The Appraisal of Real Estate, 14th Edition, (Appraisal Institute, 2013) pg. 269

What is the highest and best use of the Tampa Greyhound Track (folio 100611.0000)?

Is there a property type where we are legally required to ignore H&B Use?

?

Any other property typeswhere we ignore H&B use?

?

Thank You!