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) Adopt residential as highest and best use, adjusted for its specific risks
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
Highest and best use points to residential, the most valuable use that is legally permitted and feasible. A valuer then tests that scenario's risks, such as market timing and construction, rather than adopting the raw NPV.
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A valuer is assessing a heritage-listed residential property with significant restrictions on modifications. The property has limited comparable sales due to its unique characteristics. Which valuation approach would present the greatest challenges and why?
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A valuer is assessing a mixed-use property with retail ground floor and residential apartments above. The retail component shows a 6% yield while comparable residential yields are 4.5%. How should this complexity be addressed in valuation?