Site Valuation Concepts

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Questions and Answers

What is the definition of Highest and Best Use?

The use that is only determined by physical characteristics

The use that results in the lowest present value

The use that is only determined by legal restrictions

The use that is reasonable and probable and that results in the highest present value (correct)

What influences the value of real estate?

How it is used

What does Highest and Best Use analysis influence?

The value of the property

What are the four characteristics of Highest and Best Use?

Legally Permitted Use, Physically Possible Use, Economically Feasible Use, Maximally Productive Use Signup and view all the answers

What is meant by the term Legally Permitted Use?

Legal restrictions may influence land use Signup and view all the answers

Define Physically Possible Use.

The physical characteristics of a site must support the intended use Signup and view all the answers

What is Economically Feasible Use?

A use that results in a positive economic return Signup and view all the answers

What does Maximally Productive Use indicate?

The use that results in the highest value Signup and view all the answers

What is the Principle of Anticipation?

The potential future benefits of ownership affect property value Signup and view all the answers

What is Interim Use?

A highest and best use viewed as temporary Signup and view all the answers

What is Excess Land?

Land that is not needed for the highest and best use of the site Signup and view all the answers

What is Plottage?

The increase in value from combining multiple lots Signup and view all the answers

What is the Sales Comparison Method?

The most important and reliable approach to land valuation Signup and view all the answers

What is the Land Residual Method?

A method for estimating land value based on income Signup and view all the answers

What is Ground Rent?

The rent paid by the tenant of a ground lease Signup and view all the answers

What is the purpose of Depth Tables?

To illustrate how the highest value is located in the front part of a lot Signup and view all the answers

Study Notes

Highest and Best Use

Represents the most profitable and reasonable use of a property that maximizes its present value.
Considers all potential uses perceived by the market.

Value Dependence

Property value varies significantly based on its intended use; a site may be worth more for commercial than agricultural purposes.
Real estate appraisal centers on determining the highest and best use for accurate market value.

Purpose of Analysis

Analysis influences property value by connecting market value to the most profitable use.
Guides separate valuation of land and improvements; consistent use requires both components to align with the highest and best use.

Comparable Properties

Identifies properties with similar highest and best use for effective sales comparison in valuation.

Characteristics of Highest and Best Use

Legally Permitted Use: Must comply with zoning and legal restrictions.
Physically Possible Use: Site's physical traits—size, shape, and soil—must support the intended use.
Economically Feasible Use: Must provide a positive return; oversupply conditions may render development financially impractical.
Maximally Productive Use: Focuses on use yielding maximum value through productivity.

Principle of Anticipation

Future benefits and potential uses are crucial in determining property value; the likelihood of changes affecting use must be considered.

Interim Use

Temporary highest and best use designated for properties awaiting development.

Distinction of Land Types

Differentiates between highest and best use of vacant land and improved properties for valuation.

Improvements Impacting Value

Existing structures may alter highest and best use; appraisers consider costs of removing improvements when assessing value for future uses.

Legally Nonconforming Uses

Permits continued usage of properties that no longer meet current zoning laws but were compliant prior to changes.

Excess Land and Plottage

Excess Land: Portion of land not needed for highest and best use.
Plottage: Value increase resulting from combining multiple lots for more profitable use.

Sales Comparison Method

Dominant and reliable approach, emphasizing analysis of actual sales data to establish property value.
Elements of Comparison include location, timing, financing terms, property rights, and physical characteristics.

Property Rights and Adjustments

Ownership rights and associated restrictions significantly impact property value; adjustments must account for differences in rights and restrictions among comparables.

Land Valuation Methods

Six Methods: Include Sales Comparison, Allocation, Extraction, Development, Land Residual, and Ground Rent Capitalization techniques.

Allocation Method

Estimates land value based on a predetermined ratio of land to improvements derived from similar properties.

Development Method

Used for large undeveloped parcels, applies discounted cash flow techniques to project future net cash flows from land sales.

Land Residual Method

Employs income capitalization to value land based on income produced, necessitating accurate determination of various income-related factors.

Ground Rent Capitalization

Values land through the capitalization of ground rent from long-term leases, applying the income capitalization formula.

Depth Tables

Illustrate how property value diminishes with additional depth loss; the "4-3-2-1 Method" is a simplified evaluation technique for assessing depth value.

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Description

Explore essential terms and definitions related to site valuation in real estate. This quiz covers concepts such as Highest and Best Use, providing insights into property valuation and its implications. Perfect for those looking to deepen their understanding of real estate appraisal.