Property Analysis and Highest and Best Use
What highest and best use is
The highest and best use is the reasonably probable, legally permissible, physically possible, financially feasible use that produces the highest value. Test the four criteria in order: legally permissible → physically possible → financially feasible → maximally productive. Applies to both land as though vacant and property as improved.
Traps
- Skipping the legal or physical test and jumping to feasibility.
- Confusing interim use (temporary until a higher use is ready) with highest and best use.
- Failing to consider that existing improvements may not represent highest and best use - then value the land as vacant.
- Treating special-use or excess land incorrectly. Excess land has potential for separate development; surplus land does not.
Site and improvement analysis
Know site vs situs (value created by location), excess vs surplus land, plottage (assemblage increasing value), corner influence, topography, zoning, deed restrictions, and easements. Improvement analysis covers age, condition, functional utility, and remaining economic life.
Neighborhood and market area
Identify boundaries, life cycle stage (growth, stability, decline, revitalization), and forces affecting value. Link conclusions to the subject's competitive market segment.
Rule of thumb
If a legally permissible, physically possible use is not financially feasible, it is not the highest and best use - move to the next candidate. If existing improvements are not the highest and best use, conclude land value plus any contributory value of improvements.