Distortions of highest and best-use conclusions
Highest and best use can be looked at as a triangle with the highest value at the peak and lower values as you descend the perimeter of the triangle. While the highest value is at the peak, it is narrow and most likely contains only one buyer. As you descend, value decreases but the spectrum of buyers increase. Taxing jurisdictions aim to value real estate at the top of the triangle, while the reality of the marketplace is substantially down the slope.
As taxing jurisdictions seek to reach the pinnacle of the triangle, they ignore the reality of the market place, ultimately culminating in a use value rather than market value. This singular myopic vision allows taxing jurisdictions to argue inflated values. This valuation standard is not objective.
In New Jersey, this issue was highlighted when a Tax Court decision in the case of Brockway Glass held that the "highest and best use" of the subject property was limited to its current use as a glass manufacturing plant. In so doing, the Tax Court ascribed a value to the property "in use," or as that lower court put it, "continuing use," which contemplated a very limited and specific use.
The New Jersey supreme court, on review, reestablished the cardinal valuation principle that market value can be determined only by an examination of the reality of the marketplace and of the actions of the buyers and sellers within that market in Ford Motor Co. v. Edison in 1992.
Thus, the court concluded that if one narrows the prospective demand for a property solely to its present occupancy, one has eliminated the use of any market data in seeking to value real estate from a market reality perspective.
Moreover, by limiting the demand for any market solely to the user/occupant, one implicitly categorizes the property as special purpose, even though the category special purpose may not be applicable. Clearly, the supreme court effectively enunciated that a review of highest and best use cannot cease at the top of the triangle, but must continue until the intersection of value and the reality of the marketplace meet.
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© 2012 Penton Media Inc.
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