Valuation Principles, Value Concepts, and Highest and Best Use
Candidates must command the value concepts before touching methodology. Market value is an opinion of the most probable price in a competitive, open market under specified conditions as of a stated date; it presumes informed, willing parties, reasonable exposure, and no compulsion. Contrast it with investment value (value to a specific owner), fair value (context-dependent, often statutory), liquidation value (forced or orderly), and insurable or replacement value. The single most common error is importing assumptions from one definition into another - for example, treating a liquidation premise as if reasonable exposure time still applied.
Value is anchored to a date, not a report date. Facts known after the effective date are generally excluded from the analysis, though they may be disclosed.
Highest and best use (HBU) is the reasonably probable, legally permissible, physically possible, financially feasible, and maximally productive use. Test the four criteria in order; a use that fails legality or physical possibility never reaches the financial test. For improved property, test the property as improved and as if vacant, then select the higher.
Worked example: a parcel zoned for four units but physically able to hold six. The six-unit use fails the legally permissible test, so feasibility analysis proceeds on four units - do not analyze the six-unit scenario's economics at all.
Traps: confusing HBU with current use; assuming the most intensive use is automatically maximal; and applying an interim use that is not legally permissible during the presumed holding period.