Question

A single-family residence is located in a commercially-zoned area. Residential sale prices in the area range from $90-100 per square foot. The residence could be converted to offices at a cost of $40 per square foot. Office space in this area is selling at $110-120 per square foot. What is the highest and best use of this property?

O Convert the residence into offices
O Continue use as a single-family home.
O Raze the residence and build a new office
O Determine what the owner wants to do with the property

Answer 1

The single-family residence has a higher per square foot value as a residential property compared to after a conversion to office space, even at the lower end of residential sale price, making the continued use as a single-family home the highest and best use.

Step-by-step explanation:

The highest and best use for a property is the use that will likely produce the greatest net return over a period of time. In the scenario provided, the single-family residence is in a commercially-zoned area with residential sale prices ranging from $90-100 per square foot.

The cost to convert the residence into office space is $40 per square foot, while office space is selling at $110-120 per square foot. Using a basic comparison of potential sale prices minus the conversion cost, if we take the low end for office space ($110) and subtract the conversion cost ($40), we get a potential value of $70 per square foot for the converted office use.

On the other hand, using the property as a single-family residence would value the property between $90 and $100 per square foot, with no additional conversion cost required. It is clear that even at the lower range of residential prices, the property as a residence has a higher per square foot value compared to after a conversion, without considering additional factors like market demand, financing cost, or conversion time.