Property ValuationIntermediateAlabama Exam

The highest and best use of a property is defined as the use that is:

AThe current use of the property

BLegally permissible, physically possible, financially feasible, and maximally productiveCorrect

CThe use preferred by the current owner

DThe use assigned by the zoning authority, which most practitioners would generally accept

Why Legally permissible, physically possible, financially feasible, and maximally productive Is Correct

Answer B: Legally permissible, physically possible, financially feasible, and maximally productive

Highest and best use is the reasonably probable use that is legally permissible, physically possible, financially feasible, and maximally productive in terms of value.

Exam Tip: Property Valuation

Valuation questions focus on the three approaches to value: sales comparison, cost, and income. Know which approach is best for which property type. The income approach uses cap rate and NOI — memorize these formulas.

Key Property Valuation Terms in This Question

Zoning

Local government regulations that control land use by dividing areas into zones specifying permitted uses, building sizes, and densities.

People Also Study

Key Terms to Know

Zoning

Local government regulations that control land use by dividing areas into zones specifying permitted uses, building sizes, and densities.

Purchase Agreement

A legally binding contract between a buyer and seller that outlines the terms and conditions of a real estate sale.

Appraisal

A professional estimate of a property's market value prepared by a licensed or certified appraiser.

Capitalization Rate (Cap Rate)

A rate used to estimate the value of income-producing property, calculated as Net Operating Income divided by property value.

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