Highest and Best Use of Land: Part 1
2/5/2013 10:01 AM
The highest and best use of land is the cornerstone of determining its market value. This conclusion must be reached before the remainder of the appraisal analysis can be undertaken. Quite simply, if the highest and best use conclusion is incorrect, the ultimate conclusion reached on market value stands little chance of being correct. The highest and best use analysis is the one area which forensic appraisers frequently fail to consider in proper depth.
As noted in our January 25, 2013 article, an appraiser must fully investigate all aspects of the expropriated property as the first step in the valuation process. The appraiser must then apply the criteria to determine the land’s highest and best use. This is defined by the text Appraisal of Real Estate as the use of the land which is:
1. Physically Possible;
2. Legally Permissible;
3. Financially Feasible; and,
4. Maximally Productive
These four requirements are not complex and are explained in the following paragraphs.
Physically Possible means that the land must be of the proper size, shape, topography and structure to accommodate and support the proposed uses. This is the first step considered because if the land cannot physically support the proposed uses, the other factors cannot even be considered.
Legally Permissible means that there must not be any legal restrictions prohibiting the proposed uses. Examples of such restrictions include proximity to an airport or municipal by-laws, environmental legislation or restrictive covenants prohibiting the proposed uses.
Financially Feasible means that the proposed uses must be profitable if they were to be employed on the land in question.
Maximally Productive means the most profitable use from all of the proposed uses that pass the first three requirements.
In our next post, we will look at an example of a “highest and best use” analysis.
If you have any questions or would like to discuss this topic further, please contact Robert H. Pineo at Patterson Law at 1-888-897-2001.