One of the essential elements of the appraisal process is establishing what the subject property’s optimum use would be and then appraising the property according to that use. This is a mandatory step in performing an appraisal for market value, as the property is always valued on the basis of its highest and best use. However, when appraising for a type of value other than market value, highest and best use analysis may not be necessary for credible results.

Some of the basic elements in the consideration of the highest and best use (HBU) of the subject include, but are not limited to:

  • – Supply and demand
  • – Competition
  • – Conformity
  • – Site size
  • – Building restrictions
  • – Zoning requirements
  • – Building codes
  • – Market area trends

Traditional theory holds that there are four tests (criteria) for highest and best use. In order to be considered the highest and best use for a property, the use must be:

  • – Physically possible
  • – Legally permissible
  • – Financially feasible
  • – Maximally productive

There may be multiple uses that are physically possible, legally permissible, and financially feasible. The highest and best use of a property is the one use that is maximally productive, that is, the use that produces the highest land value.