Rock Products

JUL 2015

Rock Products is the aggregates industry's leading source for market analysis and technology solutions, delivering critical content focusing on aggregates-processing equipment; operational efficiencies; management best practices; comprehensive market

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20 • ROCK products • July 2015 Valuation Guidance H ighest and best use (H&BU) analysis is a founding prin- ciple in real property valuation. When applied to the val- uation of land at the buffer area of a construction aggregates operation, it triggers interesting and relatively complex mat- ters for consideration. Base-level understanding about the current user and the user's competitive market, expected economic mine life and land-reversion scenarios, along with competitive land uses in the market area, make supportable valuation at the buffer a challenge that often requires understanding well beyond that used in valuing land with more traditional uses. This article presents a conceptual framework to assist in dealing with this challenge. The current market value of any land parcel is the collective assessment and agreement point of the willing market buy- ers (who have purchasing power) and a willing seller, neither under duress. Market participants gauge the future benefits to be derived from use of the parcel, as well as its potential linkage to other assets or benefits, from their own perspec- tives of self-interest. Unlike in more general real property valuation settings, com- parable transactions of buffer land are typically nonexistent. While such analysis may become relatively involved and com- plex, highest and best use analysis, coupled with other foun- dational real property principles, are key to properly consid- ering and determining supportable land values at the buffer. Highest and Best Use According to the Appraisal Institute's "The Appraisal of Real Estate," highest and best use is defined as "The reasonably probable use of property that results in the highest value." The concept is further described as follows: To be reasonably probable: • The use must be physically possible (or it is reasonably probable to render it so). • The use must be legally permissible (or it is reasonably probable to render it as so). • The use must be financially feasible. Uses that meet the three criteria of reasonably probable uses "Highest and best use analysis, coupled with other foundational real property principles, are key to properly consider- ing and determining supportable land values at the buffer." are tested for economic productivity, and the reasonably probable use with the highest value is the highest and best use. A practical summary about it follows: "In the real estate arena, the highest and best use of a specific parcel of land is not determined through subjective analysis by a property owner, developer, real estate agent or apprais- er; but rather, it is a use shaped by the competitive forces within the market where the property is located." H&BU is correctly applied by considering the situational contexts of "as if vacant" and then "as improved." In an effort to focus on the buffer area as defined herein, this article Highest And Best Use Valuation Guidance Regarding Buffer Land At Quarry Operations. By Gary R. Loke

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