Property ValuationIntermediateAlaska Exam

The principle of 'highest and best use' in Alaska appraisal means:

AThe use that generates the greatest gross income

BThe most profitable legally permissible, physically possible, financially feasible, and maximally productive useCorrect

CThe use the current owner prefers

DThe use that requires the least amount of capital investment, though outcomes can differ depending on circumstances

Why The most profitable legally permissible, physically possible, financially feasible, and maximally productive use Is Correct

Answer B: The most profitable legally permissible, physically possible, financially feasible, and maximally productive use

Highest and best use is the reasonably probable use that is legally permissible, physically possible, financially feasible, and maximally productive. An appraiser first determines highest and best use as if vacant, then as improved, to establish the basis for the valuation.

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

Appraisal

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

People Also Study

Key Terms to Know

Appraisal

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

Gross Rent Multiplier (GRM)

A quick valuation metric for income properties calculated by dividing the property price by gross annual rental income.

1031 Exchange

A tax-deferred exchange allowing investors to sell one investment property and reinvest proceeds in a like-kind property while deferring capital gains taxes.

Right of First Refusal

A contractual right giving a party the opportunity to match any offer received before the owner can accept it from a third party.