Highest and Best Use

An appraisal term meaning that reasonable use, at the time of the property appraisal, which is most likely to produce the greatest net return to the land and/or the building over a given period of time. The use must be legal and in compliance with regulations and ordinances within the police power of the county and the state, including health regulations, zoning ordinances, building code requirements, and other regulations. The highest and best use is determined by evaluating the quantity and quality of income from various alternative land uses. Net return normally is interpreted in terms of money, although consideration may be given to such things as amenities.

For example, vacant land in a central business district currently used as a parking lot may or may not be employed at its highest and best use, depending on whether the surrounding market is ready for further commercial development. A gas station site may be more effective as a fast-food facility or a dry cleaner.

For appraisal purposes, land is always valued as though vacant and available for development to its highest and best use. The estate taxes and the real property taxes paid by an owner of unimproved real estate are usually based on the highest and best use of the land rather than the use to which it is actually devoted.