Highest and Best Use
Fannie Mae will only purchase or securitize a mortgage that represents the highest and best use of the site as improved. Ifthe current improvements clearly do not represent the highest and best use of the site as an improved site, it must be indicatedon the appraisal report.
The appraiser determines highest and best use of a site as the reasonable and probable use that supports the highest presentvalue on the effective date of the appraisal. For improvements to represent the highest and best use of a site, they mustbe legally permitted, financially feasible, and physically possible, and must provide more profit than any other use of the sitewould generate. All of those criteria must be met if the improvements are to be considered as the highest and best use of asite.
The appraiser’s highest and best use analysis of the subject property should consider the property as it is improved. Thistreatment recognizes that the existing improvements should continue in use until it is financially feasible to remove the dwellingand build a new one, or to renovate the existing dwelling. If the use of comparable sales demonstrates that the improvementsare reasonably typical and compatible with market demand for the neighborhood, and the present improvementscontribute to the value of the subject property so that its value is greater than the estimated vacant site value, the appraisershould consider the existing use as reasonable and report it as the highest and best use.
For additional information, seeB4-1.3-04, Site Section of the Appraisal Report.
