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- Highest and best use
- What are the requirements for the highest and best use of a property?
- How To Determine The Highest and Best Use of a Property
- How To Determine The Highest and Best Use of a Property
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Highest and Best Use , or highest or best use HBU , is a concept that originated with early economists such as Irving Fisher , who conceptualized the idea of maximum productivity. In any case where the market value of real property is sought, that value must be based on its highest and best use. Highest and best use is always that use that would produce the highest value for a property, regardless of its actual current use. The reasonably probable and legal use of property, that is physically possible, appropriately supported, and financially feasible, and that results in the highest value.
Highest and best use
The concept of highest and best use is one of the fundamental principles that underlie real estate appraisal. Highest and best use requires that the appraisal considers not just the current use of the property but also the potential value associated with alternative uses. The Appraisal Institute has four tests that appraisers can use in order to narrow down all of the alternatives to one highest and best use of the property.
You can use the following four tests to find the highest and best use of a site as if vacant or currently improved. The first test of highest and best use simply evaluates whether it is possible to use the land in a certain way. Ignoring the zoning and economics of the proposal, consider whether or not the potential use is physically possible.
That means the topography, soil type and conditions, lot size and shape, surface and subsurface water, and even weather patterns must make the development possible. In addition, an appraiser must not only consider the proposed use of the site but also the characteristics of the optimum improvements for that use.
This first test, however, is usually the easiest to pass. After eliminating any potential uses that are not physically possible, you can move on to the second test. Whether a potential use is legally permissible involves a few different legal considerations. The proposed use must be allowed by zoning regulations. If building in a residential area with restrictive covenants, the proposed improvements must not violate any rules. The proposed use must conform to all applicable building codes and height limits.
In addition, the improvements must adhere to any restrictions imposed by easements on the property. Determining whether a proposed use is legally permitted requires research into the local building regulations and restrictions.
Gaining a comprehensive understanding of the applicable legal requirements can be time-consuming, but it is fairly easy to determine whether or not a proposal violates any of these regulations. Concluding whether or not something is legally permissible is a straightforward process. Regulations, however, change over time.
An area that was zoned for residential development can be changed to commercial development. Just because a proposed development is not legally permissible does not mean that it will always be that way. In these cases, an appraiser must consider the probability of the legal restriction being changed to allow the proposed development. In these cases, there should be substantial documentation suggesting that the regulation will be changed in order to pass to the third test of highest and best use.
To address whether a proposed use is financially feasible, you need to conduct a market analysis and develop proforma cash flow estimates. Employing discounted cash flow techniques, you can determine which projects meet your particular investment standards. Discounting cash flows by your cost of capital and computing the net present value , a project is considered financially feasible if the NPV is greater than 0.
Only the proposed property uses that meet these criteria for being financially feasible move to the next step of the analysis. The prior steps eliminated proposed uses that were not physically possible, legally permissible, or financially feasible. This final step takes all of the proposed uses that meet these requirements and ranks them in order of value or rate of return.
While ranking proposed uses, it is also helpful to consider the risk associated with the proposed use. For example, one proposed use might generate a much higher internal rate of return than all of the other proposed uses.
Yet, the reason for the high return may be related to the higher risk of that project. One way to adjust for the risk associated with a proposed use is to apply a discount rate that is commensurate with the level of risk while computing the net present value.
In the end, the proposed use with the highest internal rate of return and net present value is the maximally productive use. To illustrate how highest and best use works in practice, consider an old s brick building in the central business district of a small city. Business and residents moved away from the area, and its current use as retail space may no longer be the highest and best use of the property.
Another alternative would be to renovate the property and convert it into office space. Market research indicates this is a desirable area for professional office such as attorneys, accountants, architects, and designers. Highest and best use analysis evaluates each potential use of the property and its corresponding value.
Highest and best use analysis, therefore, concludes that the best use of the property is as office space. In this article, we discussed the 4 tests for highest and best use. These 4 tests ask if the proposed use is 1 physically possible, 2 legally permitted, 3 financially feasible, and 4 maximally productive. We then walked through an example of how to apply highest and best use theory to evaluate a property with three potential uses: as vacant land, as an existing structure, and as renovated.
Your email address will not be published. Save my name, email, and website in this browser for the next time I comment. Do you have questions, comments, or feedback? Drop us a line and let us know. Get in touch. Skip to main content Skip to primary sidebar Skip to footer The concept of highest and best use is one of the fundamental principles that underlie real estate appraisal. Four Tests for Highest and Best Use You can use the following four tests to find the highest and best use of a site as if vacant or currently improved.
Is the use physically possible? Is the use legally permitted? Would the use be financially feasible? Would the use be maximally productive? Applying Highest and Best Use to an Existing Structure To illustrate how highest and best use works in practice, consider an old s brick building in the central business district of a small city.
What are the requirements for the highest and best use of a property?
Skip to search form Skip to main content You are currently offline. Some features of the site may not work correctly. Analysis highest and best use HBU is one method that can be used in optimizing the utilization of vacant land located in Area Kualanamu International Airport Deli Serdang Regency, Sumatera Utara Province, because there is vacant land that included broad and not yet well developed. The purpose of this study was conducted to identify the need for action is the potential to develop in the area of research, to achieve these targets used analysis toolscoring. Save to Library. Create Alert. Launch Research Feed.
From a practical point of view, a format for a highest and best use analysis/report will be presented. Theory. Definition. Various attempts have been made over the.
How To Determine The Highest and Best Use of a Property
The concept of highest and best use is one of the fundamental principles that underlie real estate appraisal. Highest and best use requires that the appraisal considers not just the current use of the property but also the potential value associated with alternative uses. The Appraisal Institute has four tests that appraisers can use in order to narrow down all of the alternatives to one highest and best use of the property. You can use the following four tests to find the highest and best use of a site as if vacant or currently improved. The first test of highest and best use simply evaluates whether it is possible to use the land in a certain way.
However, little mention is made of the process of estimating use or its basis in market analysis. Scribner, D. Report bugs here. Please share your general feedback.
Through all of this, we will help clients understand the nature of our appraisal or consulting assignments which may result in a reduction in their perceived need to lodge complaints. The AIC Consolidated Regulations are quite clear in outlining the two goals of our professional practice process. The first goal is to educate our members to prevent reoccurrence of situations that essentially motivate people to complain, and the second goal is to ensure procedural fairness throughout the complaint investigation and the disciplinary process.
How To Determine The Highest and Best Use of a Property
- Что предпочитаешь. - У меня черный пояс по дзюдо. Беккер поморщился. - Предпочитаю вид спорта, в котором я могу выиграть. - Победа любой ценой? - улыбнулась Сьюзан. Защитник Джорджтауна перехватил опасную передачу, и по трибунам пронесся одобрительный гул. Сьюзан наклонилась к Дэвиду и шепнула ему на ухо: - Доктор.
Северная Дакота - это Грег Хейл. Глаза ее не отрывались от экрана. Мозг лихорадочно искал какое-то другое объяснение, но не находил.
In brief, this work shows the limits of the traditional analysis (Discounted Cash Flow Model) to capture flexibility in the real estate investment and presents an.
Highest and Best Use Analysis
Взрывной волной Сьюзан внесло в кабинет Стратмора, и последним, что ей запомнилось, был обжигающий жар. ГЛАВА 106 К окну комнаты заседаний при кабинете директора, расположенной высоко над куполом шифровалки, прильнули три головы. От раздавшегося взрыва содрогнулся весь комплекс Агентства национальной безопасности. Лиланд Фонтейн, Чед Бринкерхофф и Мидж Милкен в безмолвном ужасе смотрели на открывшуюся их глазам картину. Тридцатью метрами ниже горел купол шифровалки. Поликарбонатная крыша еще была цела, но под ее прозрачной оболочкой бушевало пламя. Внутри клубились тучи черного дыма.
Он так много лгал, он так виноват. Стратмор знал, что это единственный способ избежать ответственности… единственный способ избежать позора. Он закрыл глаза и нажал на спусковой крючок. Сьюзан услышала глухой хлопок, когда уже спустилась на несколько пролетов. Звук показался очень далеким, едва различимым в шуме генераторов.
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Она не доверяла Грегу Хейлу. Он был из другого теста - не их фирменной закваски. Она с самого начала возражала против его кандидатуры, но АНБ посчитало, что другого выхода .