Corner-Lot Highest and Best Use in a Townhome Transition
The subject is a 1950s 1,200-square-foot single-family house on a 7,500-square-foot corner lot. Zoning is R-3, which permits single-family and townhomes at a maximum density of 12 units per acre; the house is a legal conforming use. The neighborhood is transitioning: two townhome projects within 0.3 mile sold for $425,000 per unit; each unit is 1,600 square feet and costs about $170 per square foot to build. A comparable 7,500-square-foot corner lot sold six months ago for $310,000 to a townhome developer. Improved house comparables indicate $340,000–$360,000. Demolition and site clearing would cost $18,000. A local builder says the site can hold two townhomes, not three, and requires a 15% entrepreneurial incentive. The owner wants you to 'call the highest and best use townhomes' because a developer has expressed interest.
1. Apply the four tests and determine the highest and best use as vacant, showing the residual calculation.
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Legally permissible: R-3 allows townhomes at 12 units per acre. The site is 7,500 / 43,560 = 0.1722 acre; 0.1722 × 12 = 2.07, so the maximum is two units, not three. Physically possible: two 1,600-square-foot units plus parking can fit, subject to site-plan verification. Financially feasible: retail value is 2 × $425,000 = $850,000. Construction cost is 2 × 1,600 × $170 = $544,000. Entrepreneurial incentive at 15% of construction cost is $81,600. Residual land value = $850,000 − $544,000 − $81,600 = $224,400. That is positive, so the use is financially feasible. Maximally productive: two townhomes are the likely vacant-site use, but the $310,000 land sale exceeds the $224,400 residual by $85,600. Verify that sale: it may reflect lower construction costs, higher unit prices, a different unit count, or non-market motivation. As vacant, the HBU is two townhomes if the residual is supported; the land sale alone does not prove three units are allowed.
2. Determine the highest and best use as improved, compare existing use with demolition/redevelopment, and explain whether the developer interest changes your conclusion.
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As improved, compare value in existing use with value if demolished. Existing-use value is about $350,000, the midpoint of the $340,000–$360,000 range. Demolition/redevelopment gives a cleared-site value of $310,000 − $18,000 = $292,000 before considering construction and profit. The existing house yields $350,000, which is $58,000 higher than the cleared-site value. Therefore the HBU as improved is continued single-family use, at least as an interim use, with redevelopment potential. The developer's interest is market evidence but does not override the math; an inquiry or letter of intent may be speculative. Verify whether the $310,000 land sale included an adjacent parcel, a variance, or unusual terms. If demolition were imminent and the land sale were fully reliable, the conclusion could shift, but on these facts the house remains the higher-value improved use.