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  • 7 HBU Analysis RED HO

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    The document defines highest and best use as the reasonably probable and legally permitted use of property that is physically possible, financially feasible, and results in the highest land value. It discusses analyzing a site's legal permissibility and physical possibility as vacant land by considering zoning, environmental regulations, and parcel characteristics. It also covers determining if a use is financially feasible by evaluating income potential versus expenses or development costs and profits. The highest and best use is the use that produces the greatest residual land value. For improved property, the analysis identifies potential renovations or conversions and determines if changes are legally permitted, physically possible, and financially justified based on costs versus increased value.

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    The document defines highest and best use as the reasonably probable and legally permitted use of property that is physically possible, financially feasible, and results in the highest land value. It discusses analyzing a site's legal permissibility and physical possibility as vacant land by considering zoning, environmental regulations, and parcel characteristics. It also covers determining if a use is financially feasible by evaluating income potential versus expenses or development costs and profits. The highest and best use is the use that produces the greatest residual land value. For improved property, the analysis identifies potential renovations or conversions and determines if changes are legally permitted, physically possible, and financially justified based on costs versus increased value.

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    © All Rights Reserved
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    4 views2 pages

    7 HBU Analysis RED HO

    Uploaded by

    suhardiyanto
    The document defines highest and best use as the reasonably probable and legally permitted use of property that is physically possible, financially feasible, and results in the highest land value. It discusses analyzing a site's legal permissibility and physical possibility as vacant land by considering zoning, environmental regulations, and parcel characteristics. It also covers determining if a use is financially feasible by evaluating income potential versus expenses or development costs and profits. The highest and best use is the use that produces the greatest residual land value. For improved property, the analysis identifies potential renovations or conversions and determines if changes are legally permitted, physically possible, and financially justified based on costs versus increased value.

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    © All Rights Reserved
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    of 2

    11/8/2013

    Definition
    The reasonable probable and legal use of
    vacant land or an improved property that is
    physically possible, appropriately supported,
    and financially feasible and that results in the
    highest value
    AHMAD SAIFUDIN MUTAQI, IAI. IR. MT.
    Four tests
    ƒ Legally permissable
    ƒ Physically possible
    ƒ Financially feasible
    PUSAT STUDI REAL ESTAT BERKELANJUTAN ƒ Maximally productive
    CENTER OF SUSTAINABLE REAL ESTATE STUDY
    Refference: Finance 673 Real Property Valuation
    Department of Finance, Mays Business School, Texas A&M University

    SITE ANALYSIS HBU as though Vacant


    SITE LEGAL PERMISSIBILITY & PHYSICALLY POSSIBLE

    Site Analysis  Quantify demand 
    Marketability 
    capture or 
    Legal permissibility
    Liability Study  or supply in trade 
    (fixed) area
    penetration 
    absorption
    ƒ Analysis of zoning
    ƒ Probability of zoning change
    Market Analysis 
    Trade area 
    Financial 
    –History of rezonings
    analysis 
    Study feasibility after tax –Comprehensive plan
    (alternative uses)

    ƒ Environmental regulations
    Preliminary 
    Examination of 
    Highest and  Physically possible
    highest and best 
    alternative uses best use 
    use analysis ƒ Consider parcel size, shape, terrain, etc.
    11/8/2013

    HBU as though Vacant HBU as though Vacant


    (continued) (continued)
    Financially feasible Maximum productivity
    ƒ Of the uses that are legal and physically ƒ Analysis of financially feasible uses
    possible, which are financially feasible ƒ HBU is use that produces highest land residual
    ƒ For income producing uses ƒ Land residual analysis
    –Feasible if income greater than operating –Value of proposed use (land and buildings)
    expenses, debt service, required return to less development cost (and profit) equals land
    equity residual
    ƒ Non-income producing uses –Overall value (Vo) - cost = land residual (VL)
    –Feasible if value greater than the amount –Quantity left over
    needed to develop and market property

    HBU as Improved HBU as Improved (continued)


    Financially feasible
    Identify renovations, rehabilitation, conversion ƒ Continued market demand
    (re-use), change of use ƒ Are changes feasible?
    Legal permissible Maximum productivity
    ƒ Whether subject conforms to existing ƒ Are costs of any indicated changes justified?
    regulations ƒ Which change allows greatest value (net after
    ƒ Evaluate existing improvements cost)
    Physically possible ƒ Usually conclude existing uses are HBU, unless
    ƒ Existing use is they no longer contribute value, and alternative
    ƒ Modifications possible use of land has high enough vlaue to justify
    demolition cost

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