Oh FFS. You’re still trying? And by citing to a case that you clearly don’t understand? First, that case/quote is talking about “highest price” not “highest and best use.” Second, that case is entirely about the admissibility of a valuation methodology as specifically applied by a particular appraiser.
Third, different states have different rules when it comes to the admissibility of certain valuation methodologies. Fourth, all states and the federal gov’t recognize that the fair market value of a property is arrived at by first determining its highest and best use (the case you cite does so early on by recognizing that the parties stipulated to the highest and best use of the subject property being for residential subdivision). Fifth, the appraisal was judged inadmissible because it was too speculative: because he both (a) didn’t have sufficient support for his “assumptions” about costs, etc. (we always have engineers, licensed site professions, wetlands experts, etc. to testify to costs) and (b) because he failed to provide evidence to back up his market assumptions…not because they were wrong, but because they were unsupported. You deliberately ignored the point the court makes after what you quoted: “nowhere in the many steps of his analysis did Patterson take into account any characteristics of the relevant marketplace that would affect what price a willing buyer would pay to a willing seller.” The court is not saying that highest and best use does not drive value. It’s saying that you have to put that highest and best use into its relevant context so you’re not feeding the jury a pie-in-the-sky analysis in a vacuum.
We try cases on the subdivision development approach, having them fully admitted and upheld, ALL THE DAMN TIME. The trick is providing an evidentiary basis for every single little thing in the discounted cash flow analysis. That includes factoring in risk, marketing time, appreciation rates, an appropriate discount rate, each and every cost and when they would be incurred (subdivision costs are frontloaded because of the roadway being built), providing backup for customary developer’s profits, establishing demand and competition (or lack thereof) for similar properties, reasonable probability evidence for obtaining all relevant permits (i.e., showing permits were granted to other similar projects), absorption rates for lots in similar subdivisions, availability (or lack thereof) of similarly situated subdividable land, wetlands issues, Title 5 issues, habitat issues, soil and groundwater issues, potential contamination issues, adjustments to comparable sales for size, proximity to the subject, time, amenities etc. etc. etc. The cases are a real pain in the ass and expensive for all the experts needed, but properly done you end up with a parade of experts each testifying about part of the spreadsheet and an appraiser who testifies to how it all fits together IN CONTEXT. Miss a thing or two and the whole thing can crumble and become inadmissible.
The appraiser and plaintiff’s lawyers in that TX case failed to do all that. The approach was discarded by the court because it failed to include market context and was therefore insufficiently grounded, leaving it too speculative to be probative of value. It was NOT discarded because it is improper to perform a highest and best use analysis and then value a property for that use. As is frequently stated, that value must take into account the likelihood of that use and its futurity…i.e., context. Moreover, it is worth noting that, as I mentioned earlier, different states approach the subdivision method different ways, and TX is one of the stricter ones…BUT the decision you cite both acknowledges that the approach can be admissible and that it is merely ruling on the particular facts and evidence in the case before it.
You’ll also note that the concurrence also focuses in on the issue of whether the approach is speculative, and reaches way back to 1897 to cite a case in which TX established a bright line rule that the approach is simply not admissible. It takes issue with the “winning” opinion for understanding that, properly done, the approach can reach beyond being mere “speculation.” Anyway, that old TX rule would be one of the most stringent in the country on the issue of subdivision approaches, which helps put into context the strict admissibility analysis that was applied. What it shows is that TX was traditionally on the side of courts that have found that if the highest and best use is as a subdivision, but the land is not yet subdivided, you’re supposed to go find comparable sales of large acreage ripe for subdivision, but which wasn’t subdivided yet…not engage in a discounted cash flow analysis of how the subdivision process would play out. It also shows that despite the old rules in TX, even TX is moving towards the admissibility of the discounted cash flow analysis. The reasoning there is analogous to another eminent domain rule, which is that your valuation methodology can’t involve attributing income to a building that’s not yet built on the property…it’s just too many steps removed and therefore speculation. some state courts treat the not-yet-subdivided lots the same way the other rule treats the not-yet-built building.
In any case, nothing about that decision changes the fact that to determine FMV, you first determine highest and best use and then value the property for that use. The case is all about what valuation methodology you then apply to it. But whatever…you’re obviously never going to get it. I’ve forgotten more about land valuation and eminent domain than you will ever ever know in your entire life.