When an existing property is improved and outvalues the land when it is vacant, the improvement here is the highest and best use. So an appraiser first calculates the highest and best use of a property by analyzing the land as it is vacant and unused.
Then they assess the best use of the improved property by analyzing the demolition, continuation, and modification the property goes through. The highest and best value of a property is a crucial aspect in deciding its market value.
Highest and best use refers to the most profitable utilization of a provided property. To calculate the property highest and best uses, an individual needs to know the property current use and the profitability of other potential uses.
While an appraiser evaluates a property, they need to analyze four criteria:
• Legal Permissibility
An appraiser begins their highest and best use analysis by evaluating the building codes, zones, private restrictions, environmental regulations, and historical background.
• Physical Possibility
Appraisers need to evaluate the characteristics of the land. This includes the terrain, shape, depth, accessibility, and threats of natural disasters.
• Financial Feasibility
In a transaction process, when a land property proceeds through the legal and physical assessments, the apprisers need it to be financially feasible.
• Maximum Productivity
This test is essential in evaluating commercial properties. The appraiser needs to analyze different factors for analyzing a property maximum value. This test analyzes if the intended use of the land maximizes the property value.
The analysis of the highest and best use of a property plays a vital role in deciding the value of a property. It lets the land owner know which uses will bring the best benefits out of this property. Such evaluation also helps them to receive the best price for their land and property constructed on it.
By analyzing the nature of the land, the owner can decide whether a property will best suit residential uses or fetch the highest benefits if used for commercial or industrial purposes.
Moreover, a property evaluation also helps in tax calculation, evaluation of ROI(Return on Investment), and assessing potentials that can generate income. Finally, an appropriate property evaluation with expert professional support helps the owner understand the improvements and renovations it may need.
So, property owners need to analyze and understand their property highest and best use. This will enable them to make the most of their resources and receive the best value for their assets.
