Why should the subject and its comparables have the same or very similar highest and best use?
Correct Answer
C) Because a use-potential difference affects value and is hard to measure
Highest and best use should be the same or highly similar for the subject and comparables. A difference in use potential generally causes a significant value difference that is very difficult to quantify, so it is preferable to select comparables with the same highest and best use.
Why This Is the Correct Answer
Option C is correct because a difference in use potential generally causes a significant difference in value, and an adjustment for it may be very difficult to quantify. It is therefore preferable to select comparables with the same highest and best use as the subject. Matching the use keeps the comparison meaningful.
Why the Other Options Are Wrong
Option A: Because zoning differences can be adjusted with a fixed percentage
Option A, adjusting zoning differences with a fixed percentage, is wrong because use-potential differences are hard to quantify, not easily handled by a set percentage. Any adjustment must reflect market evidence rather than a fixed formula.
Option B: Because highest and best use matters for land, not for improved sales
Option B, saying highest and best use matters for land but not improved sales, is wrong because highest and best use applies to improved properties as well. Comparables with a different use potential can differ greatly in value even when they are improved.
Option D: Because lenders require comparables to be in the same zoning district
Option D, saying lenders require comparables in the same zoning district, is wrong because the reason for matching highest and best use is the value effect of use potential. It is not a lender rule about zoning districts, and comparables can share a use without sharing a district.
Same use, fair compare
Comparables with the same highest and best use compete for the same buyers, so their prices compare fairly.
How to use: Use this when screening comparables or answering why use potential matters in selection.
Exam Tip
Look for the answer that ties highest and best use to value and the difficulty of measuring the difference, rather than to lender or zoning rules.
Common Mistakes to Avoid
- -Thinking highest and best use only matters for vacant land
- -Using a fixed percentage to adjust for different use potential
- -Selecting comparables by zoning label alone
Concept Deep Dive
Analysis
This question tests why comparables should share the subject's highest and best use. A difference in use potential tends to create a large value difference, and that difference is very hard to measure with an adjustment. Choosing comparables with the same highest and best use avoids an adjustment that would be hard to support.
Background Knowledge
Highest and best use is the reasonably probable use that produces the highest value, and it shapes how buyers price a property. Properties with different use potential, such as a lot suited to commercial use versus one limited to residential use, can sell at very different prices. Because such differences are hard to measure, comparable selection is the better control.
Real-World Application
An appraiser values a house on a residential lot and finds a nearby sale of a similar house on a corner lot recently rezoned for office use. The rezoned sale's price reflects its commercial potential, which would be very hard to adjust for. The appraiser chooses other sales with residential highest and best use instead.
More Sales Comparison Questions
Supported adjustments are: non-market financing $10,000, GLA $36/sf, garage $3,500 per car, pool/spa $12,500. A comparable identical to the 2,800 sf subject sold for $267,000 with non-market financing. What is its adjusted price?
Using GLA $36/sf and non-market financing $10,000: a 3,100 sf comparable sold for $277,000 with non-market financing; the subject has 2,800 sf. Bath count differences are not adjusted. What is the adjusted price?
Using garage $3,500 per car and pool/spa $12,500: a comparable with a 2-car garage and a pool/spa sold for $268,000. The subject has a 3-car garage and no pool. What is the adjusted price?
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