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Highest and Best Use Analysis

 

            Highest and best use means the use or utilization that provides the most profitable return on investment. It is that use, selected from reasonably probable and legal alternative uses, which are found to be physically possible, appropriately supported and financial feasible to result in the highest possible land value.
             Highest and best use as thought vacant assumes that a parcel of land is vacant or can be made vacant by demolishing any improvements. If the land is vacant, things to be considered are what use should be made of it and what type of building or other improvement, if any, should be constructed on the land and when?.
             There is certain criterion that must be followed when using the highest and best use analysis. Legal permission must be obtained from the zoning commission, conformity with building codes, and environmental regulations. Is the land physically possible? Physically possible relates to the size, shape, area, terrain, and accessibility of the land. Is the land financially feasible? Financially feasible relates to anything that can be expected to yield a positive return. Is the land maximally productive? Out of the financially feasible uses, the one that produces the highest residual land value consistent with the rate of return warranted by the market for that use is the highest and best use.
             In determining highest and best use, there are a few important points to consider such as: .
             v Is agriculture use a long-term or interim use.
             v Current zoning may not be consistent with a property's highest and best use.
             v The existing use may not be optimum.
             v Surrounding land uses are not always indicative of optimum use.
             In the land or site valuation, the appraisal of land focuses on valuing the property rights attached to the land. The appraiser should consult public records to identify any easements, rights-of-way, and private or public restrictions that affect the subject property.


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