The Leader - September/October 2008 - (Page 64) real e stat e maNaGemeNt Take a Fresh Look: Understand Highest and Best Use Before Filing a Tax Appeal BY rIcharD r. WrIGht aND ellIott B. pollack, esQ. B efore deciding to challenge the value of your property in U.S. real estate tax appeal proceedings, spend a few moments considering its highest and best use as of the relevant date of value. Highest and best use is not an arid expression of appraisal jargon; it is a critical point of analysis for the property owner, in concert with his expert advisors and counsel, before putting his property in play. Most states require real estate values to be determined, at least after informal proceedings have concluded, on the basis of expert testimony from appraisers. In order to furnish an opinion as to market value, it is necessary to have an understanding of a property’s highest and best use. Market value, as we know, is the amount which in cash or cash equivalents would be paid to a knowledgeable seller by an equally knowledge- able buyer, both free of constraints not typical in the applicable market place. Highest and best use (HBU) is the most valuable use, in terms of dollars (or these days, perhaps euros) to which a property may be devoted. Many owners fall into the trap of making the unwarranted assumption that the current use of their property is its highest and best use. In a dynamic real estate market, reflexively deciding that current use equals HBU can be dangerous. It’s equivalent to believing absolutely that the future will be the same as the past. hBu IsN’t alWaYs vIsIBle IN a rear vIeW mIrror The current use of a property is the use to which it has been put based on past understandings of the market and historic economic judgments. Depending on how long ago that decision was made, its accuracy as a current HBU may be subject to challenge. Just because someone decided to construct a strip mall on a 20-acre (8-hectare) tract of verdant farmland 20 years ago does not mean that the existing strip mall is the HBU today. Just because a service station was constructed on the corner of a busy intersection in one of New York City’s five boroughs shouldn’t blind the owner to a future user’s objectives. And although a surface parking lot has been generating substantial monthly and transient revenues for its owner does not necessarily mean that a buyer would reach the same economic conclusion as to future use. Of course, the less significant the buildings and improvements are on a parcel, the more likely a fresh look at HBU is required. But the fact that a major office building or hotel occupies a certain land parcel may have nothing to do with the future use to which the 2 0 0 8 th e le aDe r 64 septemBer / octoBer
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