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Valuation Articles   - Automatic Valuation  - Factors affecting Value  - Different from Appraisals  - More about Valuations A bit about Melbourne  - Melbourne’s Buildings  - Study in Melbourne  - Melbourne’s Weather  - Melbourne’s Economy   Property Information  - Building Construction  - Highest & Best Use  - Project Feasibility  - GST & Property  - Title, Encumbrances, etc.  - Due Diligence Live-Work-Invest - Migrants in Melbourne - Investing in Melbourne Resources - Rates & Taxes - Stamp Duty
Highest & Best Use Highest   and   Best   Use   is   a   valuation   concept   which   means   a   property's   value   must   be   based   on   the   best economic purpose to which it can be used. Consider the following: Built   on   a   905   square   metre   site   is   a   single   storey   detached   house   in   reasonable   condition   which   is   currently used as a residence but includes some office and storage use. Zoning regulations allow for the continuing use as a residential property, use as an office or storage area or the development of a light industrial use. These are the only uses considered to be possible and probable. The value of the property is then estimated assuming different allowable uses. The results are as follows: Use No. 1: Value as House  
Value Estimate Net Operating Income (NOI) Net Income Multiplier (NIM) Value Estimate
      $510,000              based Direct Comparison         $23,400                  22              or 4.55% rental yield       $514,800              based on rental income
Use No. 2: Value of Office / Storage Space     Value Estimate     Net Operating Income (NOI)     Net Income Multiplier (NIM)     Value Estimate Use No. 3: Value as Vacant Industrial Site     Site Area     Value per sq,m     Value Estimate
                            $50,000                  13              or 7.69% rental yield       $650,000              based on rental income                798              $600                    $478,800              based on $/sq.m comparison
In   this   example   the   Highest   and   Best   Use   of   the   property   is   as   Office/Storage   Space   ($650,00   versus $514,800 as House and $478,000 as Vacant Industrial Site). However,   it   is   more   difficult   than   it   seems.   Several   questions   have   to   be   answered   to   estimate   the   value   of   the property for each use. These questions include: (a)   In   Use   No.   1   which   adopts   the   Direct   Comparison   approach   of   valuation,   which   houses   were   selected   as sales comparables?   (b)   What   outgoings   were   recoverable   and   what   were   not   recoverable   in   determining   the   Net   Operating Income?   (c) How was the Net Income Multiplier (or rental yield) derived? (d) How was the value per sq metre of site area known? Also, the zoning regulations have to be studied to establish what uses are permitted on this site....etc....etc.
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© AskTheValuer All rights reserved. 2008-2017 

Products

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www.AskTheValuer.com.au
Ask The Valuer
Highest & Best Use Highest and Best Use is a valuation concept which means a property's value must be based on the best economic purpose to which it can be used. Consider the following: Built on a 905 square metre site is a single storey detached house in reasonable condition which is currently used as a residence but includes some office and storage use. Zoning regulations allow for the continuing use as a residential property, use as an office or storage area or the development of a light industrial use. These are the only uses considered to be possible and probable. The value of the property is then estimated assuming different allowable uses. The results are as follows: Use No. 1: Value as House  
    Value Estimate     Net Operating Income (NOI)     Net Income Multiplier (NIM)     Value Estimate
      $510,000              based Direct Comparison         $23,400                  22              or 4.55% rental yield       $514,800              based on rental income
Use No. 2: Value of Office / Storage Space     Value Estimate     Net Operating Income (NOI)     Net Income Multiplier (NIM)     Value Estimate Use No. 3: Value as Vacant Industrial Site     Site Area     Value per sq,m     Value Estimate
                            $50,000                  13              or 7.69% rental yield       $650,000              based on rental income                798              $600                    $478,800              based on $/sq.m comparison
In this example the Highest and Best Use of the property is as Office/Storage Space ($650,00 versus $514,800 as House and $478,000 as Vacant Industrial Site). However, it is more difficult than it seems. Several questions have to be answered to estimate the value of the property for each use. These questions include: (a) In Use No. 1 which adopts the Direct Comparison approach of valuation, which houses were selected as sales comparables?   (b) What outgoings were recoverable and what were not recoverable in determining the Net Operating Income?   (c) How was the Net Income Multiplier (or rental yield) derived? (d) How was the value per sq metre of site area known? Also, the zoning regulations have to be studied to establish what uses are permitted on this site....etc....etc.

Servicing ALL suburbs within Metropolitan Melbourne

A bit about Melbourne  - Melbourne’s Buildings  - Study in Melbourne  - Melbourne’s Weather  - Melbourne’s Economy
Property Information  - Building Construction  - Highest & Best Use  - Project Feasibility  - GST & Property  - Title, Encumbrances, etc.  - Due Diligence
Resources - Rates & Taxes - Stamp Duty