Florida Real Estate Broker ExaminationValuation and Market AnalysisMedium
A real estate broker is advising a client on the potential value of their commercial property. The property is currently zoned for light industrial use, but due to recent comprehensive plan changes and surrounding residential development, there's a strong likelihood it could be rezoned for multi-family residential, which would significantly increase its value. In determining the property's value, the broker should primarily consider its:
- AHistorical use and associated income.
- BCurrent light industrial use.
- CReplacement cost new, less depreciation.
- DHighest and best use as multi-family residential.
Show answer & explanationAnswer & explanation
Correct answer: D. Highest and best use as multi-family residential.
The highest and best use of a property is the reasonably probable and legal use of vacant land or an improved property that is physically possible, appropriately supported, financially feasible, and that results in the highest value. In this scenario, the potential for rezoning to a more profitable use dictates its highest and best use.
Why the other options are wrong
- A. Historical use is less relevant than the current market and potential future uses for determining maximum value.
- B. While current use is a factor, the highest and best use considers potential future uses that maximize value.
- C. The cost approach (replacement cost less depreciation) is one valuation method, but it doesn't alone determine the highest and best use.
Highest and Best Use
The reasonably probable and legal use of vacant land or an improved property that is physically possible, appropriately supported, financially feasible, and that results in the highest value.
- Crucial in appraisal, especially for vacant land.
- Considers four criteria: legal permissibility, physical possibility, financial feasibility, maximum productivity.
- May differ from current use.
Memory trick: Highest & Best: What's the top, most profitable thing a property can be?