Highest and best use
National Real Estate Exam glossary · Valuation
Definition
The legally permissible, physically possible, financially feasible, and maximally productive use of a property—the use that yields the greatest value. Every appraisal rests on this finding, evaluated in that order: a use must first be legal and possible before its feasibility and productivity are weighed.
Highest and best use in plain English
Every piece of land could be used many ways — a house, a store, a parking lot, left empty — and 'highest and best use' is a fancy name for the single use that would make the property worth the most money. Appraisers (the people who estimate what a property is worth) start here, because a lot's value comes from its best realistic option, not whatever happens to sit on it now. The catch is you check the options in order: it has to be (1) LEGAL to do there, (2) physically POSSIBLE to build, (3) able to make MONEY, and only then (4) the most profitable of the survivors. A dream skyscraper that zoning forbids is out at step one, no matter how much cash it might rake in.
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