What is the meaning of highest and best use?

Definition: According to The Uniform Standards of Professional Appraisal Practice, 2002, highest and best use is defined as “The reasonably probable and legal use of property that is physically possible, appropriately supported, and financially feasible, and that results in the highest value”.

What four considerations determine the highest and best use?

Here’s a breakdown of the four criteria that Highest and Best Use must meet.

  • Physically possible. You must consider the size, shape, topography, and accessibility of the site when determining if it is physically possible.
  • Legally permissible.
  • Financially feasible.
  • Maximally productive.

What is a highest and best use study?

A highest and best use study seeks to identify which use would bring maximum value to a piece of vacant land or an improved parcel. A highest and best use analysis for a given property must meet certain criteria that flow in sequential order. The order is generally: Legally permissible.

Does Uspap require highest and best use?

If you’re valuing a vacant site, then you must address highest and best use as vacant. If you’re valuing a site as if vacant (as in the case of an improved property when we complete a cost approach), you must address the question of the highest and best use as if vacant.

How do appraisers determine highest and best use?

The Appraisal Institute defines highest and best use as “the reasonably probable and legal use of vacant land or an improved property that is physically possible, appropriately supported, financially feasible and that results in the highest value.” Appraisers typically apply four tests to determine that use.

What is the first test of highest and best use?

The four tests of highest and best use are: (1) legally permissible (2) physically possible (3) financially feasible and (4) most profitable. The first two tests are interchangeable in order and, in many circumstances, the last two are combined.

What is the first step in determining highest and best use for a property?

The first step to knowing the highest and best use of the land is understanding the legal regulations of building in the area. You will have to understand some legal terms and considerations to see if the land’s potential use is allowed by law.

Why is highest and best use analysis important?

Why is the highest and best use so important in the appraisal process? It is because the highest and best use determines the most profitable use of the site, whether the subject is vacant land or an improved property on the site. This article applies to both residential and commercial appraisers.

What is an example of highest and best use?

For example, assume that “House B” has a value as a house of $200,000, and a site value as a commercial lot of $250,000 with a cost to demolish the house and prepare the site at $25,000. The highest and best use of the site is to demolish the house and sell the site as a commercial lot.

When must an appraiser develop an opinion of the highest and best use?

Standards Rule 1-3 states that “when necessary for credible assignment results in developing a market value opinion, an appraiser must develop an opinion of the highest and best use of the real estate.” and that STANDARDS RULE 2-2 (a)(x) states “when an opinion of highest and best use was developed by the appraiser.

Who determines highest and best use?

The Appraisal Institute
The Appraisal Institute defines highest and best use as “the reasonably probable and legal use of vacant land or an improved property that is physically possible, appropriately supported, financially feasible and that results in the highest value.” Appraisers typically apply four tests to determine that use.

What is the purpose of analyzing the highest and best use of a property as though vacant and of the property as improved?

Highest and Best Use of Property as Improved Use of the property as presently developed must be examined in order to consider demolition of existing improvements and redevelopment, continuation or modification of existing use.

What is the USPAP standard?

USPAP was adopted by Congress in 1989, and contains standards for all types of appraisal services, including real estate, personal property, business and mass appraisal. Compliance is required for state-licensed and state-certified appraisers involved in federally-related real estate transactions.

What is the definition of highest and best use?

Definition. The Appraisal Institute defines highest and best use as follows: The reasonably probable and legal use of vacant land or an improved property that is physically possible, appropriately supported, financially feasible, and that results in the highest value. The four criteria the highest and best use must meet are: legal permissibility.

How is USPAP enforced?

How is USPAP Enforced? Although the ASB writes, amends, and interprets USPAP, the Board does not enforce USPAP. Through FIRREA, the Federal government has mandated that the states enforce real property appraiser compliance to USPAP. Professional appraisal associations also have the legal authority to enforce USPAP compliance by their members.

What is in the USPAP book?

In addition to these Standards, USPAP contains Standards for mass appraisal, personal property and business valuation. The USPAP book also includes important guidance in the form of Advisory Opinions and Frequently Asked Questions. Please visit these links to purchase your copy of the complete book today!