What does the term "highest and best use" mean in appraisal practice?

The term "highest and best use" in appraisal practice refers to the most advantageous use of a property that meets several specific criteria: it must be legally permissible, physically possible, financially feasible, and maximally productive. This definition encompasses a comprehensive analysis of how a property can be utilized to its fullest potential while complying with zoning laws, physical limitations, and market conditions.

Identifying the highest and best use is crucial for appraisers because it informs property valuation and investment decisions. It often involves evaluating multiple potential uses, considering the overall benefits each may provide, and determining which option will yield the greatest return on investment over time. The concept emphasizes not just immediate gains, but also considers long-term sustainability and growth potential in property value.

Other options may address certain aspects of property usage or valuation, but they do not capture the holistic nature of "highest and best use." For instance, focusing solely on immediate income or projecting future value neglects important factors such as legal and physical constraints that must also be considered.