highest and best use real estate meaning

Heres a breakdown of the four criteria that Highest and Best Use must meet. Highest and best use.

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Principle of Highest and Best Use.

. The reasonably probable and legal use of vacant land or an improved property that is physically possible appropriately supported financially feasible and that results in the highest value. The first definition of highest and best use is that it is the use for a piece of land or property in general that maximizes your net present value NPV. The definition of highest and best use is as follows.

In my opinion the use that generates the highest net present value is the highest and best use because it takes into account both the time value of money and the cost of capital. A property must be appraised in terms of its highest and best use. To begin with a site needs to be physically large enough for the application.

Definition of Highest and best use George Jarrous Real Estate Agent Century 21 Curran Oberski Use of a parcel of land that will produce the greatest current value. Say you ask your buyers for their highest and best offer on your home initially listed for 250000 and receive these terms. The offer should be in writing accompanied by a pre-approval if you are financing or a proof of funds letter if the offer is all cash.

In other words the highest and best use of a piece of land right in the middle of downtown is probably a high rise office tower since that option provides the greatest NPV. Highest and Best Use is the reasonable probable and legal use of vacant land or an improved property. Highest and Best Use is the likely use selected from a number of available choices to which an area of land or a building may be put based on what is physically possible and in compliance with zoning and building regulations and which at the time of an appraisal produces the most profitable present value of the land.

The most profitable legally. The Fifth Edition of The Dictionary of Real Estate Appraisal by the Appraisal Institute defines highest and best use as. Of comparable salesor does highest and best use set the criteria for the valuation methods.

The possible use of land that will produce the greatest net income and thus develop the highest land value. Highest and best use highest and best use an appraisal term meaning the legally financially and physically possible use that at the time of appraisal is most likely to produce the greatest net return to the land andor buildings over a given period. Dictionary of Real Estate Terms.

Specifically the appraisal institute describes the highest and best use of a property as the reasonably probable and legal use of vacant land or an improved property that is physically possible appropriately supported and financially feasible and that results in the highest value The Four Tests in Highest Best Use Analysis. This is extremely common in a hot market when a seller receives multiple offers. Uses That Are Physically Possible.

Highest return can mean different thing to different people Internal Rate of Return Net Present Value development profit or residual land value. The highest and best use is determined by a licensed real estate appraiser whether for vacant land or improved property. Its actual current use is not relevant to the highest and best use.

The value must be based on its highest and best use that would produce the highest value for property regardless of its actual current use. The highest and best use analysis concept is a form of real estate appraisal that considers not only the best use of the property but any potential use or gains that may come from future ventures. 250000 offer with financing and inspection contingency largest earnest money deposit.

The Appraisal Institute uses this definition for highest and best use. Application of Highest and Best Use Principles The Appraisal of Real Estate fourteenth edition states The analysis of highest and best use is at the heart of appraisals of the market value of real property12 It seems logical therefore that. The concept of highest and best use is one of the fundamental principles that underlie real estate appraisal.

The reasonably probable and legal use of vacant land or an improved property that is physically possible appropriately supported financially feasible and that results in the highest value. When a seller requests highest and best they are asking a buyer to submit their highest and best offer. In commercial real estate the phrase refers to a property that represents its most profitable and feasible use.

For example suppose you want to. Highest and Best Use. 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.

While some sellers may just accept an offer or negotiate with one offer others will request highest and best to give all buyers an opportunity to submit their best offer. The offer should be the highest they are willing to pay and carry the best terms they can present. This is factored with the probable and legal use of the property that is physically possible financially feasible and.

Definition of Highest and Best Use in Real Estate. How Do Appraisers Predict Highest Best Use. Highest and Best Use is a fundamental principal of real estate valuation that takes into account the propertys current and alternate uses to determine which will generate the greatest value.

248000 offer with all contingencies waived 30-day close. According to the Appraisal Institute the definition for highest and best use is the reasonably probable and legal use of vacant land or. Highest and best use is based on the use that is going to bring the highest value for real estate.

What Does Highest and Best Use Mean. Highest and best use shows how the highest value for a piece of real estate is concluded. There should be a deadline to present the highest and best offer which all parties must adhere to.

This would be done by conducting a site analysis. 260000 offer with financing and inspection contingency 60-day close. You must consider the size shape topography and accessibility of the site when determining if it is physically possible.

Back to Glossary Index. The reasonable 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. Permitted feasible and physically possible use.

Highest and best use or HBU is a factor in real estate appraisals that shows how the highest value for property is achieved. Highest and best use is an important consideration of the appraisal process for a property.

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