A valuer is assessing a mixed-use development site where the highest and best use analysis indicates potential for either residential apartments (NPV $8.2M, 18-month development) or commercial offices (NPV $7.8M, 24-month development). Current zoning permits both uses. What valuation approach and conclusion is most appropriate?
Correct Answer
C) Apply highest and best use principle using residential scenario with risk adjustments
The highest and best use principle requires selecting the most profitable legally permissible use, which is the residential development. However, the higher returns must be adjusted for additional risks including market timing, construction complexity, and the longer approval process typically associated with higher-density residential development.
Why This Is the Correct Answer
The highest and best use principle requires selecting the most profitable legally permissible use, which is the residential development. However, the higher returns must be adjusted for additional risks including market timing, construction complexity, and the longer approval process typically associated with higher-density residential development.
About Property Valuation & Appraisal
Valuation methods, comparative market analysis, factors affecting value, and appraisal standards.
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A valuer is assessing a unique architectural property with no recent comparable sales. The property generates $120,000 net annual income, but market capitalisation rates vary from 5.5% to 7.5% depending on risk assessment. What additional factor is MOST critical for determining the appropriate rate?