Which describes highest-and-best-use analysis under SR 1-3?
Correct Answer
D) Develop and support it when needed for credible results
When necessary for credible results, develop and support highest and best use with relevant legal, physical and economic analysis. Owner occupancy or an improved property does not create an automatic exemption. The extent of analysis follows the problem; a zoning administrator does not replace the appraiser’s judgment.
Why This Is the Correct Answer
Option D is correct because SR 1-3 requires the appraiser, when necessary for credible results, to develop an opinion of highest and best use. The comment explains that the appraiser must analyze the relevant legal, physical and economic factors to the extent necessary to support that conclusion.
Why the Other Options Are Wrong
Option A: Omit it for owner-occupied property
Option A omits highest and best use for owner-occupied property. Owner occupancy does not create an exemption; the analysis is required when necessary for credible results.
Option B: Restrict it to vacant land rather than improved property
Option B restricts the analysis to vacant land. Highest and best use applies to improved property as well, including whether the existing improvements represent the best use.
Option C: Delegate the conclusion to the local zoning administrator
Option C delegates the conclusion to the local zoning administrator. Zoning informs the legally permissible use, but the highest and best use opinion is the appraiser's own judgment.
Legal, physical, financial, maximal
Highest and best use must be legally permissible, physically possible, financially feasible and maximally productive.
How to use: Use these four tests to support or check a highest and best use conclusion.
Exam Tip
Be wary of answers that exempt a property type from highest and best use or hand the conclusion to someone else.
Common Mistakes to Avoid
- -Skipping highest and best use for owner-occupied homes
- -Applying highest and best use only to vacant land
- -Treating zoning alone as the highest and best use conclusion
Concept Deep Dive
Analysis
This question tests highest and best use under SR 1-3. When necessary for credible results, the appraiser develops and supports an opinion of highest and best use with relevant legal, physical and economic analysis. The wrong options create exemptions or delegate the appraiser's judgment.
Background Knowledge
Highest and best use is commonly tested as legally permissible, physically possible, financially feasible and maximally productive. It can be analyzed for the land as though vacant and for the property as improved.
Real-World Application
An appraiser values an owner-occupied older home in an area where land values are rising. She analyzes whether continued use of the house or redevelopment is the highest and best use and supports her conclusion with zoning and market data.
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