An older home occupies a lot large enough for three modern houses in a redeveloping area. What does this suggest?
Correct Answer
A) Redevelopment may be the best use if its net benefit beats continued use
Existing improvements may be removed when the supported value of the proposed completed redevelopment, after all demolition, construction, timing, risk and required return considerations, exceeds value from continuing or modifying the existing use. A high hypothetical vacant-site value alone does not make demolition feasible.
Why This Is the Correct Answer
Option A is correct because existing improvements may be removed when the supported value of redevelopment, after demolition, construction, timing, risk and required return, exceeds the value of continuing the existing use. The use producing the highest risk-adjusted return is the highest and best use as improved, so redevelopment is a possibility to test, not a certainty.
Why the Other Options Are Wrong
Option B: Any parcel that permits more units must be demolished immediately
Option B says any parcel that permits more units must be demolished immediately. Permitted density alone does not make demolition feasible; the appraiser must weigh costs, timing, risk and the value of the current use.
Option C: The existing house must have zero contributory value to the property
Option C says the existing house must have zero contributory value. The house may still contribute value, for example as an interim use, until redevelopment becomes feasible; nothing in the facts proves its contribution is zero.
Option D: The parcel must be valued as its current single-family dwelling, as it is
Option D says the parcel must be valued as its current single-family dwelling, as it is. That skips the highest and best use analysis, which considers whether redevelopment of the larger lot would produce a higher value.
Redevelop only when the net benefit wins
Tear-down makes sense only when the supported value of the redevelopment, after demolition, construction, timing, risk and required return, beats keeping or modifying the existing building. A high vacant-land value by itself does not settle it. Use this comparison when a question asks whether an older improvement should be removed.
How to use: Use this comparison when a question asks whether an older improvement should be removed.
Exam Tip
Prefer answers that weigh the net benefit of redevelopment against continued use over answers that use 'must' with no analysis.
Common Mistakes to Avoid
- -Assuming more permitted units means demolition is required now
- -Ignoring demolition and construction costs when comparing uses
- -Valuing the property as currently improved without testing alternatives
Concept Deep Dive
Analysis
This question tests highest and best use as improved when existing improvements may underuse the site. An older home on a lot that could hold three new houses suggests redevelopment might be the better use. The appraiser compares the supported net benefit of redevelopment with continuing or modifying the existing use.
Background Knowledge
Highest and best use as improved asks whether to keep, modify or demolish existing improvements. Removal is supported when the value of the completed redevelopment, after demolition, construction, timing, risk and required return, exceeds the value of continuing or modifying the existing use. A high hypothetical vacant-site value alone does not make demolition feasible.
Real-World Application
An appraiser values a small 1950s house on an oversized lot in a neighborhood where builders are replacing such homes with three new houses. She analyzes recent tear-down sales, lot split rules, demolition and construction costs, and the value of the existing house to decide the highest and best use as improved.
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Which fact, if supported by competitive-market evidence, most directly supports a unit-price premium for an otherwise comparable site?
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An appraiser is extracting site value from a $600,000 cash sale. The seller's records show an original construction cost of $250,000 and a depreciated book value of $110,000. The appraiser estimates current replacement cost new at $400,000 and accrued depreciation from all causes at $100,000. What is the indicated site value?
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Previous Question
Plottage (assemblage) value is the increment created when two or more parcels are combined into a larger unit worth more than the sum of the separate parcels, after assemblage costs. Parcel A is worth $320,000 alone and Parcel B is worth $210,000 alone. Combined as one site, market value is $610,000. Direct assemblage costs (legal, demolition of a fence, surveying) total $35,000. What net plottage value results?
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In the land residual technique, income attributable to the land is found by: