A profitable gas station operates while some nearby properties convert to retail. The appraiser has not yet studied whether redeveloping the gas station site would be feasible or when it could occur. What use conclusion is justified?
Correct Answer
C) Continued-use and redevelopment analysis is needed
Analyze the subject’s continuing use and feasible conversion alternatives. Profitable operation and nearby conversions alone do not prove interim status, permanent HBU or functional obsolescence. A gas station can have specialized design, but that also does not choose its best use.
Why This Is the Correct Answer
Option C is correct because, without subject-specific feasibility or timing evidence, the appraiser needs to analyze both the subject's continuing use as improved and its feasible conversion alternatives. Nearby conversions and current profitability are inputs to that analysis, not conclusions.
Why the Other Options Are Wrong
Option A: Functional obsolescence is proven by the conversions
Option A, functional obsolescence is proven by the conversions, is wrong because nearby properties converting to retail does not show a defect in the gas station's design or utility. Obsolescence must be identified and measured with evidence about the subject.
Option B: The property must be demolished because it is specialized
Option B, the property must be demolished because it is specialized, is wrong because a specialized design does not decide the best use. Demolition is supported only if analysis shows a redevelopment use is more productive after removal costs.
Option D: The current use is permanently fixed as a gas station
Option D, the current use is permanently fixed as a gas station, is wrong because changing surroundings may create redevelopment potential over time. Highest and best use can change as market conditions change, and that potential has not yet been studied.
Clues need analysis
Neighborhood change is a clue to investigate, not a verdict on the subject's use.
How to use: Use this when an option jumps from neighborhood trends straight to a firm use conclusion.
Exam Tip
When the stem says key evidence is missing, prefer the answer that calls for the analysis over one that states a firm conclusion.
Common Mistakes to Avoid
- -Treating nearby conversions as proof of obsolescence
- -Assuming a specialized building must be demolished
- -Treating the current use as permanent despite market change
Concept Deep Dive
Analysis
This question tests what conclusion the facts support when a neighborhood is changing but no subject-specific feasibility evidence exists. Nearby conversions and a profitable operation are relevant clues, but they do not prove obsolescence, require demolition or lock in the current use. The supportable step is to analyze the subject's continued use and redevelopment alternatives.
Background Knowledge
Highest and best use analysis considers the property as improved as well as alternative uses. In a transitional area, the current use may be an interim use, but that conclusion requires evidence on feasibility, timing and cost of conversion. Profitability of the current operation is relevant but not conclusive.
Real-World Application
Along a commercial corridor, several older service stations have been replaced by shops. An appraiser valuing an operating station studies the cost and timing of conversion and compares it with the station's continued-use value before concluding on highest and best use.
More Market Questions
Market analysis confirms that seller financing at 3%, versus a 6% market rate, increased a comparable sale price. What adjustment removes that financing premium?
At the same effective date, reliable value indications support $800,000 for continued use of a property as improved and $500,000 for its cleared site. Immediate demolition costs $100,000. These are the only feasible alternatives, with no other costs or timing differences. Which alternative has the higher net value?
Other relevant conditions equal, growth in the number of households with effective purchasing power in a market tends to have which effect?
In a lakefront market, paired sales show that direct water frontage has the largest price effect of any feature. Which approach to comparable selection best follows from this evidence?
Which circumstance can cause highest and best use as improved to differ from highest and best use as though vacant?
A small group of buyers in a market looks for specialized features that are uncommon in the broader housing supply. What term describes this group?
A neighborhood analysis should include all of the following EXCEPT:
A site legally permits at most 40 units and can physically support 50. Supported comparable analyses find 30 and 40 units financially feasible, with 40 units producing the highest net land value after costs, timing and required return. Which use is maximally productive among these alternatives?
Market evidence isolates a subject value loss from off-site landfill odors. Which listed cause is an external-obsolescence influence?
Which proposed use cannot pass the legal-permissibility screen without evidence that the necessary permission is reasonably probable?
People Also Study
Property Description
11.8% of exam
Land or Site Valuation
4.5% of exam
Sales Comparison Approach
16.4% of exam
Cost Approach
13.6% of exam
Income Approach
8.2% of exam
Previous Question
A property's current use as a gas station generates $180,000 annual net income. Alternative uses include: office building ($200,000), retail ($190,000), or residential ($170,000). Assuming all uses are legally permissible and physically possible, which represents the highest and best use?
Next Question
Verified buyer evidence in a competitive market segment shows no measurable effect from proximity to transit, but strong effects from waterfront location, size and quality, and market date. Which factor has the weakest support for an adjustment?