Property ValuationIntermediateDelaware Exam

What is the 'highest and best use' principle in real estate appraisal?

AThe most profitable legal use regardless of market feasibility

BThe reasonably probable and legal use of vacant land or an improved property that is physically possible, appropriately supported, financially feasible, and maximally productiveCorrect

CThe use that generates the highest gross income

DSimply the narrow use permitted automatically by right under current zoning, requiring absolutely no variances at all, which is broadly consistent with standard practice statewide

Why The reasonably probable and legal use of vacant land or an improved property that is physically possible, appropriately supported, financially feasible, and maximally productive Is Correct

Answer B: The reasonably probable and legal use of vacant land or an improved property that is physically possible, appropriately supported, financially feasible, and maximally productive

Highest and best use is the foundation of real estate appraisal — the use that is: (1) legally permissible, (2) physically possible, (3) financially feasible, and (4) maximally productive. It represents the most profitable use that the market will support.

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.

Zoning

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

Variance

Official permission to use land in a way that does not conform to the applicable zoning ordinance, granted by a zoning board when strict enforcement would cause undue hardship.

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