RockSpringCluB-Hendricks Appraisal.pdf

HIGHEST AND BEST USE The analysis of highest and best use is at the heart of an appraisal of the market value of real property, but the concept has not always been well understood by practitioners and has long been a source of debate in the professional literature. The essential components of the analysis of highest and best use are contained in the following definition of the term: The reasonably probable use of property that results in the highest value. This simple definition will serve as a point of departure for examining the concept in the rest of this chapter. To be reasonably probable, a use must meet certain conditions: physically possible (or it is reasonably probable to render it so). legally permissible (or it is reasonably probable to render it so). financially feasible. Those uses that meet the three criteria of reasonably probable uses as noted above, are then tested for economic productivity, and the reasonably probable use which results in the highest value is therefore, the highest and best use. Conceptually, the criteria of highest and best use are self-explanatory. For example, physically possible uses are land uses that are not unworkable due to some limiting physical characteristic of the land such as inadequate site size, odd shape, irregular topography, or poor soil quality. For example, a steeply sloped site tends to limit the use of the land to only a few possible alternatives. In contrast, a level plot of land with good drainage, soil with adequate bearing capacity, and other physical characteristics to the construction of improvements would likely allow a developer to build many different sorts of facilities. Based on similar lagic, fegaily permissible uses would conform to the land’s current zoning classification and local building codes along with any other relevant regulatory or contractual restrictions on land use. The test of financial feasibility narrows the number of legally permissible and physically possible uses down further through analysis of the economic characteristics of the potential alternative uses. The remaining options are candidates for the test of maximum productivity, which is the final—and deciding—criteria for the highest and best use of both the land as though vacant and the property as improved. The concept of highest and best use relates to what is done physically Source: The Appraisal of Real

teria for the highest and best use of both the land as though vacant and the property as improved. The concept of highest and best use relates to what is done physically Source: The Appraisal of Real Estate - Fourteenth (14th) Edition - 2013 Published by the Appraisal Institute. Continued . .. = 382 | i | REAL ESTATE APPRAISALS L | & RESEARCH