Market Analysis & Highest and Best Use Flashcards

Which of the following is an example of external (economic) obsolescence affecting highest and best use conclusions?

Answer: A warehouse located adjacent to a newly built residential subdivision, reducing its viable industrial use

External obsolescence originates outside the property — in this case, changing land uses from neighborhood shift reduce the industrial property's functional and economic viability.

A real estate appraiser performing a market study identifies that a local office submarket has 500,000 SF of vacant space and annual net absorption of 50,000 SF. The implied years of supply is:

Answer: 10 years

Years of supply equals total vacant space divided by annual net absorption: 500,000 ÷ 50,000 = 10 years of supply, indicating a significantly over-supplied market.

In highest and best use analysis, 'reasonable probability' of a use change means:

Answer: A rezoning or use change is more likely than not to occur based on market evidence and legal precedent

Reasonable probability requires market evidence that a change is likely (more probable than not), not merely possible — speculative future uses are not given weight.

When estimating market rent for a vacant retail space, an appraiser should give most weight to:

Answer: Lease comparables of similar retail spaces in the same or competing trade areas executed close to the appraisal date

Recent lease comparables for similar competing retail spaces are the most reliable market evidence of what a new lease would command at the appraisal date.

A property's zoning permits residential development at 10 units per acre. Market analysis shows that 20-unit-per-acre multifamily development in the area is consistently achieving the highest land values. What should the appraiser do?

Answer: Use the 10-unit density as HBU because only legally permissible uses qualify

Only legally permissible uses can qualify as highest and best use; even if a higher density produces more value, it cannot be the HBU unless it is legally allowed.

In a gravitational or trade area model (e.g., Reilly's Law), the primary purpose is to:

Answer: Determine the boundary between competing retail centers based on relative size and distance

Reilly's Law of Retail Gravitation estimates the market area boundary between two competing retail nodes based on their population or retail size and the distance between them.

Which statement best describes the relationship between highest and best use and value in appraisal theory?

Answer: The HBU conclusion drives the selection of comparable properties and directly influences the value estimate

HBU analysis is foundational — it determines what type of use and comparables are relevant, directly shaping every valuation approach used in the appraisal.