Sales show the existing home is typical and in demand, and the property is worth more than its estimated vacant site value. Under Fannie Mae guidance, how should highest and best use be reported?
Correct Answer
A) As the existing use, which is reasonable
If comparable sales show the improvements are typical and compatible with demand, and they contribute so that value exceeds the estimated vacant site value, the appraiser should consider the existing use reasonable and report it as the highest and best use.
Why This Is the Correct Answer
Option A is correct because Selling Guide B4-1.3-04 states that if comparable sales show the improvements are reasonably typical and compatible with market demand, and they contribute so that value exceeds the estimated vacant site value, the appraiser should consider the existing use reasonable and report it as the highest and best use. Both conditions are met here.
Why the Other Options Are Wrong
Option B: As redevelopment, since land values are rising
Option B, redevelopment since land values are rising, ignores that the improved property is worth more than its vacant site value. Rising land values alone do not show redevelopment is the highest and best use.
Option C: As vacant land, pending a feasibility study
Option C, as vacant land pending a feasibility study, ignores that the improvements contribute value beyond the site value. The guidance supports reporting the existing use, not vacant land.
Option D: As undetermined until the zoning changes
Option D, as undetermined until the zoning changes, has no basis in the facts given. Nothing indicates a zoning change is needed, and the existing use already meets the guidance.
Improved beats vacant, keep it
If the house adds value so the property is worth more than bare land, and buyers want homes like it, keep the existing use.
How to use: Use this comparison to decide whether to report existing use as highest and best use.
Exam Tip
Compare improved value with vacant site value. When improved value is higher and the home is typical, existing use is the reasonable conclusion.
Common Mistakes to Avoid
- -Concluding redevelopment from rising land values alone
- -Ignoring the contribution of existing improvements
- -Leaving highest and best use undetermined without cause
Concept Deep Dive
Analysis
This question tests Fannie Mae's guidance on reporting highest and best use for a typical improved home. When sales show the improvements are typical and compatible with demand, and the property is worth more than its vacant site value, the existing use is considered reasonable. That existing use is reported as the highest and best use.
Background Knowledge
When improvements contribute value so that the whole property is worth more than the land alone, keeping the improvements is generally the most productive use. Fannie Mae's guidance ties the existing-use conclusion to evidence that the home is typical and in demand. If the site value approached or exceeded the improved value, further analysis would be needed.
Real-World Application
An appraiser values a typical three-bedroom home in an established subdivision. Comparable sales show strong demand and a value well above site value, so she reports the existing single-family use as the highest and best use.
More Market Questions
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