What is meant by highest and best use? Highest and best use is the idea that there is a specific feasible and legal land use that will generate greater returns and property value above all other possible land uses for a particular property at a given time in a given market.
The idea of highest and best use is an important principle in appraisal and property valuation. Applying this principal of highest and best use entails certain criteria and caveats.
The highest and best use of a property must be feasible. Financially, the land use and necessary improvements must be economically rational. Technically, the technology and know how must exist to build the necessary structures and improvements upon the land. The structures and use of the site must be legally permitted by local laws and zoning ordinances.
The highest and best use is applicable at a given time in a given market. This means a property's highest and best use may change over time. Market's are dynamic so the highest and best use today may not be a property's highest and best use tomorrow.
For valuation purposes, the highest and best use supersedes all other uses, including the current use of the property. It is the optimal most profitable use relative to any other use. It is the use that maximizes the value of the property. A property's current use may fall short of realizing the property's full potential.
With the criteria and caveats in mind, highest and best use leads us to the highest net return on the property. The highest return equates to the highest value a property can obtain at a certain point in time under the given market conditions.