What does the term "highest and best use" refer to in appraisal?

The term "highest and best use" in appraisal refers to the most profitable use of a property that is legally permissible, physically possible, and financially feasible. This concept is crucial because it helps appraisers determine the maximum value that a property can achieve based on its potential use.

The emphasis on profitability is key, as this aligns with the primary goal of property investment: to generate the highest possible return. While legal use is important, as properties must comply with zoning laws and regulations, it is the aspect of profitability that ultimately drives the assessment of value.

In addition, the term does not refer to the most common use of similar properties, which could mislead the appraiser into overlooking unique opportunities for maximizing value. Similarly, considering the lowest cost use does not accurately reflect the principle of highest and best use, which is about maximizing potential rather than minimizing expenditures.