highest and best use real estate meaning
Highest and best use is an important concept in real estate referring to the most valuable use of a property or parcel of land. In commercial real estate the phrase refers to a property that represents its most profitable and feasible use.
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The exact definition of highest and best use varies but it generally is the most probable use of land or improved property that is legally possible physically possible financially.
. Dictionary of Real Estate Terms. Highest and Best Use. This is extremely common in a hot market when a seller receives multiple offers.
The four criteria the highest and best use must meet are legal permissibility physical possibility financial feasibility and maximum productivity. You must consider the size shape topography and accessibility of the site when determining if it is physically possible. One of the earliest citations of the term is found in the Minutes of the Maine Legislature as early as 1831 in speaking about the assessment and valuation of real estate.
While some sellers may just accept an offer or negotiate with one offer others will request highest and best to give all buyers an opportunity to submit their best offer. The highest and best use is determined by a licensed real estate appraiser whether for vacant land or improved property. Use of a parcel of land that will produce the greatest current value.
Alternatively the probable use of land or improved property specific with respect to the user and timing of the use that is adequately supported and results in the highest present value. A highest and best use offer is an important part of the real estate process. Back to Glossary Index.
Steps Three and Four financially feasiblemost profitable cannot be determined until the first two. Principle of Highest and Best Use. The concept of highest and best use is one of the fundamental principles that underlie real estate appraisal.
Its actual current use is not relevant to the highest and best use. The land was classified preceding such. This may be different from the current use of the land and can consider factors like community development goals and financial feasibility.
Appraisers begin their highest and best use analysis reviewing building codes zoning private restrictions environmental regulations and historic controls. Determining the highest and best use requires careful evaluation of a propertys potential. In other words the highest and best use of a piece of land right in the middle of downtown is probably a high rise office tower since that option provides the greatest NPV.
Definition of Highest and best use. The first definition of highest and best use is that it is the use for a piece of land or property in general that maximizes your net present value NPV. Highest and best use is an important consideration of the appraisal process for a property.
Highest and Best Use or highest or best use is a concept that originated with early economists such as Irving Fisher who conceptualized the idea of maximum productivity. Permitted feasible and physically possible use. Highest and Best Use is a fundamental principal of real estate valuation that takes into account the propertys current and alternate uses to determine which will generate the greatest value.
According to the Appraisal Institute the definition for highest and best use is the reasonably probable and legal use of vacant land or. Specifically the appraisal institute describes the highest and best use of a property as the reasonably probable and legal use of vacant land or an improved property that is physically possible appropriately supported and financially feasible and that results in the highest value The Four Tests in Highest Best Use Analysis. Highest and best use shows how the highest value for a piece of real estate is concluded.
The most profitable legally. This term refers to the best possible use of a property based on current market conditions. The first two tests are interchangeable in order and in many circumstances the last two are combined.
Highest and Best Use is the likely use selected from a number of available choices to which an area of land or a building may be put based on what is physically possible and in compliance with zoning and building regulations and which at the time of an appraisal produces the most profitable present value of the land. The four tests of highest and best use are. Highest and Best Use is the reasonable probable and legal use of vacant land or an improved property.
This would be done by conducting a site analysis. Definition of Highest and Best Use in Real Estate. Heres a breakdown of the four criteria that Highest and Best Use must meet.
When a seller requests highest and best they are asking a buyer to submit their highest and best offer. The highest best and final strategy sometimes simply called best and final means that each buyer who has submitted an offer will have one shot to put forward their most attractive price and terms. Essentially the concept of highest and best use entails selecting a use for the property that meets certain basic criteria and results in the highest value being developed.
The definition of highest and best use of land as if vacant requires appraisers evaluate the following four criteria. The highest and best use analysis concept is a form of real estate appraisal that considers not only the best use of the property but any potential use or gains that may come from future ventures. From there the seller will select an offer outright rather than start further rounds of negotiation with each individual buyer.
In order to calculate a homes highest and best offer you need to consider several factors including zoning restrictions the current market value of similar properties and. The concept of Highest and Best Use is one way the law seeks to ensure that the landowner receives full and fair just compensation for the taking. Highest and best use highest and best use an appraisal term meaning the legally financially and physically possible use that at the time of appraisal is most likely to produce the greatest net return to the land andor buildings over a given period.
Highest and best use is based on the use that is going to bring the highest value for real estate. Highest and best use requires that the appraisal considers not just the current use of the property but also the potential value associated with alternative uses. 1 legally permissible 2 physically possible 3 financially feasible and 4 most profitable.
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