What does the term “highest and best use” refer to in appraisal?

The term "highest and best use" in appraisal refers to the most profitable, legally permissible use of a property. This concept is critical in determining the value of real estate, as it considers not just the current use of the property but also what use would generate the maximum return on investment while adhering to zoning laws and regulations.

This notion encompasses several criteria: the use must be physically possible, legally permissible, financially feasible, and maximally productive. By identifying the highest and best use, appraisers can make informed decisions about property valuations and potential development scenarios, which ultimately helps in providing a more accurate assessment of a property's market value. Understanding this concept allows appraisers to align their evaluations with the economic realities of the real estate market, reinforcing the connection between property use and its potential revenue-generating capacity.