Highest and Best Use or Most Probable Use

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Highest and Best Useor Most Probable Use

• Wayne Foss, MBA, MAI
• Wayne Foss Appraisals, Inc.
• Email wfoss_at_fossconsult.com

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Definition

• The reasonably probable and legal use of vacant
  land or an improved property, which is physically
  possible, appropriately supported, financially
  feasible, and that results in the highest value.
• Note
• Physically possible
• Legally permissible
• Financially feasible
• Results in the highest value

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Applies to

• LAND or SITE as though vacant
• and the
• PROPERTY as presently improved

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Note

• The best use is estimated
• the indicated use comes from the market
• is subject to limitations of
• physical nature
• legal nature
• economic nature
• is time sensitive dynamic and may change over
  time

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Purpose and Use

• To help identify the market within which to
  subject competes
• To help identify comparable and competing
  properties for use in the Sales Comparison
  approaches for both Subject Site and Total
  Improved Property
• To help identify points of depreciation and
  obsolescence
• To help identify alternate uses

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Purpose, Uses - - continued...

• To help understand the competitive market
• How competitive
• Prices
• Liquidity, how long to sell property
• Who are the participants
• What influences them
• Trends
• To help identify most effective marketing,
  promotion, and financing
• To better understand the timing in the market,
  when uses are premature or past due.

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The Process of Analysis

• 1. What uses are LEGAL
• Public restrictions, zoning
• Private use restrictions
• Outlook for change in legal uses
• What is permitted affects productivity, market
  appearl, competitiveness - and thus probable
  price and value.

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The Process of Analysis -- continued..

• 2. Of the legal uses, identify the PHYSICALLY
  POSSIBLE USES.
• Consider for the site
• size, configuration, slope, topography, etc.
• Consider for improved property
• building condition, design, layout, utility,
  outlook, parking, access, obsolescence

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The Process of Analysis -- continued..

• 3. Of the legal and physically possible uses,
  which uses are economically possible, sensible,
  or financially feasible.
• What uses produce property worth more than cost?
• What uses produce competitive return considering
  risk?
• What is being built, and succeeding in the market
  area?

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The Process of Analysis -- continued..

• 4. Of the uses that are legally permitted,
  physically possible and financially feasible
  identify the uses(s) most profitable or that
• produce the greatest rate or money amount of
  return, or
• results in the highest value

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Estimating Highest and Best Use involves . . .

• A filtering process after
• Analysis of the appraised property
• Analysis of the market
• supply and demand of comparable and competing and
  alternative properties.
• The result of the analysis must answer several
  questions . . . . .

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Estimate of Highest and Best Use results in
several conclusions

• Who is the next BUYER likely to be - what type,
  motivation, planned use, source of funds, and
  from where.
• Who is the next USER likely to be - what use, for
  how long a term, nature of business or activity
• What productivity is expected from the property
• continued

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Estimate of Highest and Best Use results in
several conclusions

• What is the expected USE
• What is the expected timing - i.e.
• when ready for that use?
• How long will it last, duration
• and for the improvements, specifically...

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Estimate of Highest and Best Use results in
several conclusions

• For the Highest and Best Use of the Property as
  Improved, the outlook for the improvements is
• No change?
• Repair?
• Remodeling?
• Renovation?
• Replace improvements with - - - - ?

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Highest and Best Use

• The present use is presumed to be the highest and
  best use unless the appraiser can show the logic
  and probability of reasonable change based on
  market evidence.
• What is the market saying?
• Remember The highest and best use conclusion
  needs the following

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Special situations

• Single Use
• demand might exist for only one property with
  this use
• Interim Use
• highest and best use may change in the
  foreseeable future
• interim use may or may not contribute to the
  value of the site

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Special situations continued...

• Legally nonconforming use -
• a use that was lawfully established, but now is
  nonconforming to current regulations
• zoning may create underimproved or overimproved
  properties
• Multiple uses
• HBU may include more than one use for a parcel

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Highest and Best Use

• Estimate, with support, the most probable
• Use
• User
• Buyer
• Timing

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So ThatsHighest and Best Use
Are there any Questions?
Wayne Foss, MBA, MAI, Fullerton, CA USA Phone
[phone] Fax [phone] Email
wfoss_at_fossconsult.com