Property Valuation
An appraiser in Colorado is preparing an appraisal for a property in a 'transitional neighborhood' (changing from residential to commercial). The highest and best use analysis should:
AA. Only consider the current use
BB. Consider the legal uses, physically possible uses, financially feasible uses, and maximally productive use✓ Correct
CC. Only consider commercial uses
DD. Use the zoning as the only determinant
Explanation
The four tests for highest and best use are: (1) legally permissible (what zoning/restrictions allow), (2) physically possible (what the site can support), (3) financially feasible (what generates positive return), and (4) maximally productive (the use that generates the highest value). In transitional areas, this analysis may indicate a higher and better use than current use.
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Key Terms to Know
Appraisal
A professional estimate of a property's market value prepared by a licensed or certified appraiser.
ZoningLocal government regulations that control land use by dividing areas into zones specifying permitted uses, building sizes, and densities.
Fiduciary DutyThe highest legal duty an agent owes to a principal — requiring the agent to act in the principal's best interest above all others.
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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