On what basis should land or site value always be estimated?
Correct Answer
C) Its highest and best use as though vacant
Land or site value should always be based on highest and best use as though vacant. Highest and best use as improved concerns the existing improvements, and the highest gross rent is not the same as the highest land value.
Why This Is the Correct Answer
Option C is correct because land or site value is based on the highest and best use of the site as though vacant. This isolates what the land itself would be worth if available for its most productive use, apart from the existing buildings.
Why the Other Options Are Wrong
Option A: The current use of the existing improvements
Option A, the current use of the existing improvements, is wrong because that relates to highest and best use as improved. Land value is estimated as though the site were vacant, not by the use of the existing buildings.
Option B: The use that the zoning board is expected to approve next
Option B, the use the zoning board is expected to approve next, is wrong because highest and best use relies on legally permissible uses, and an expected but unapproved change is speculative unless the market shows it is reasonably probable.
Option D: The use producing the highest gross rent
Option D, the use producing the highest gross rent, is wrong because the highest gross rent does not equal the highest land value. Costs, risk and net return must be considered, so a high-rent use can produce a lower land value.
Land value: picture it empty
To value the land, mentally clear the site and ask what the best use of the empty lot would be.
How to use: Use this when a question asks how land or site value is estimated.
Exam Tip
Separate as vacant from as improved; land value questions point to the as-vacant analysis.
Common Mistakes to Avoid
- -Basing land value on the current improvements
- -Equating highest gross rent with highest land value
- -Assuming a pending zoning change will be approved
Concept Deep Dive
Analysis
This question tests the basis for estimating land or site value. Land is valued according to its highest and best use as though vacant, because the land's value is separate from whatever improvements now stand on it. Distinguishing as vacant from as improved is the key step.
Background Knowledge
Highest and best use is analyzed two ways: as though vacant and as improved. The as-vacant analysis is the basis for land value, while the as-improved analysis decides whether the existing improvements should be kept, modified or removed.
Real-World Application
An appraiser values an older single-family home on a lot now zoned for townhomes. For the land value in the cost approach, she considers the site as though vacant and finds that townhome development is its highest and best use.
More Market Questions
In market area analysis, what characteristic distinguishes a district from a neighborhood?
Under USPAP Standards Rule 1-3(a), which item must an appraiser identify and analyze when necessary for credible results in a market value assignment?
How does the Fannie Mae Selling Guide define a neighborhood?
Several homes in a neighborhood are vacant and boarded up. Which market force does Fannie Mae classify this as?
Infrastructure investment such as a new interchange typically affects nearby land by:
A city raises property tax rates and tightens building regulations. Which market force does Fannie Mae classify these as?
An appraiser believes, without market evidence, that a nearby group home lowers values. What does Fannie Mae require?
Which three categories are used to report the supply of properties in a Fannie Mae neighborhood section?
An appraiser is asked for a retrospective value opinion as of three years ago. When must the appraiser meet the Competency Rule?
Can mixed land uses in a residential neighborhood ever enhance home values, according to Fannie Mae?
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
When the price of a good rises 10% and the quantity demanded falls 4%, how do economists describe demand for that good?
Next Question
Two otherwise identical houses in one subdivision sold at different times. House A (no garage) sold 10 months before the effective date for $400,000. House B, which has a garage that market evidence shows contributes $12,000, sold 4 months before the effective date for $426,000. Using a simple (not compounded) rate based on House A's price, what monthly market-conditions rate does this pair indicate? Round to two decimals.