Certified Residential Appraiser Practice Exam

Why is it important to estimate Highest and Best Use (HBU) as improved and as though vacant?

1. To determine land value only

2. To identify potential over-improvement

3. To recognize when improvements should be razed

4. To increase tax assessments

The correct answer is: To recognize when improvements should be razed

Estimating the Highest and Best Use (HBU) both as improved and as though vacant is critical for several reasons. When considering HBU, the appraiser assesses the most profitable, legally permissible, and physically possible use of a property, which can lead to better decision-making regarding the property’s current and future value. One key aspect of this analysis is recognizing when improvements should be razed. If the HBU as though vacant is significantly more valuable than the current use or improved state of the property, it may indicate that the existing improvements are underperforming or obsolete. By evaluating the HBU, appraisers can provide property owners with insights that suggest when further investment in improvements may not yield a reasonable return or when it might be more advantageous to redevelop or remove current structures entirely. This helps in optimizing the property's value in the market and aligns with a strategic approach to property management and investment. Overall, by understanding both the current state of the property and its potential without improvements, the appraiser can guide property owners or investors on the most beneficial steps to take regarding their assets.