A comparable has a different highest and best use from the subject. What does appraisal guidance recommend?
Correct Answer
B) Prefer comparables with the subject's highest and best use
Highest and best use should be the same or highly similar for the subject and comparables; a use-potential difference usually causes a significant, hard-to-quantify value difference, so comparables with the same use are preferred.
Why This Is the Correct Answer
Option B is correct because it is preferable to select comparable properties with the same highest and best use as the subject. When use potential differs, the resulting value difference is usually significant and difficult to quantify. Choosing comparables with the same or very similar use avoids that problem.
Why the Other Options Are Wrong
Option A: Use it with no adjustment, since use does not affect price
Option A is wrong because using the comparable with no adjustment assumes use does not affect price, which is false. Differences in use potential usually cause significant value differences.
Option C: Adjust it by a fixed 20% of the comparable's sale price
Option C is wrong because a fixed 20% adjustment of the comparable's sale price is an arbitrary figure, not a market-supported adjustment. The value effect of a use difference is hard to quantify, which is why matching use is preferred.
Option D: Treat the difference as a market conditions adjustment
Option D is wrong because a market conditions adjustment reflects changes over time, not differences in highest and best use. Relabeling a use difference as a time adjustment misapplies the adjustment.
Same use, same buyers
Comparables should attract the same buyers as the subject, and buyers follow highest and best use.
How to use: Use this when deciding whether a sale with a different potential use belongs in the comparable set.
Exam Tip
When an answer offers a fixed percentage adjustment with no market support, it is usually a distractor.
Common Mistakes to Avoid
- -Assuming use differences do not affect price
- -Using an arbitrary flat percentage to adjust for a use difference
- -Treating a use difference as a market conditions adjustment
Concept Deep Dive
Analysis
This question tests comparable selection when highest and best use differs. A difference in use potential usually causes a significant value difference that is hard to measure. For that reason, appraisal guidance prefers comparables with the same highest and best use as the subject.
Background Knowledge
In the sales comparison approach, comparables should be competitive substitutes for the subject. Highest and best use drives what buyers will pay, so properties with different highest and best uses appeal to different buyers. Matching highest and best use is a basic screening step before adjusting for other differences.
Real-World Application
An appraiser valuing a single-family home finds a nearby sale of a lot zoned and priced for redevelopment as townhomes. Because its highest and best use differs from the subject's, she sets it aside in favor of sales with continued single-family use.
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