highest and best use


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Highest and Best Use

In real estate appraisals, the use of a property that leads to its highest possible value. The highest and best use may not be the current use of a property; in such cases, one may be able to buy the property for less than its ideal value. The highest and best use must be legal, physically possible, financially feasible and maximally productive.

highest and best use

In public appraisal and tax appraisal, that use of land which would be the most economically advantageous over a given period of time,while at the same time being legally, financially,and physically possible.A 5-acre residential estate within minutes of downtown Houston would have a highest and best use if it were developed for offices,and therefore should be appraised with that use in mind.Many property tax laws allow exemptions and appraisal at current use rather than highest and best use.

References in periodicals archive ?
For instance, before FAS 157 was issued, FAS 67, Accounting for Costs and Initial Rental Operations of Real Estate Projects, referred to highest and best use in describing the accounting for real estate project amenities.
The FASB defines fair value as "the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date." (2) For real estate assets, this definition entails an understanding of highest and best use. Specifically, the standard notes that a fair value measurement assumes the highest and best use of the asset by the market participants.
As it applies to fair value measurements of real property assets, highest and best use is actually a basic concept.
While fair value measurements can be applied to a single asset or group of assets, the maximum price is driven by the highest and best use concept.
In the majority of market value appraisals, practitioners are required to develop an opinion of highest and best use. Standard 1 of the Uniform Standards of Professional Appraisal Practice (US PAP) addresses the specific requirements related to an opinion of highest and best use.
(b) develop an opinion of the highest and best use of the real estate.
At that time, the property had a value of $988,000 based on its highest and best use. However, if it were used only for farming, its value would be $349,770.
The definition of highest and best use should therefore be restricted to reference to value only.
The topic of highest and best use (HBU) has not been at the forefront of appraisal literature for some time.
The lessons from the agricultural models lead to important broader conclusions regarding the highest and best use concept.
Appropriate appraisal methods currently being promoted by leading appraisal texts and courses encourage evaluation of the highest and best use of improved property both as if vacant and as currently developed.
(b) recognize that land is appraised as though vacant and available for development to its highest and best use and that the appraisal of improvements is based on their actual contribution to the site.(2)