Property Valuation
Highest and best use in real estate appraisal means the use that is:
AThe use with the highest density of development
BThe legally permissible, physically possible, financially feasible, and maximally productive use✓ Correct
CThe use that generates the highest gross income
DThe use that the current owner desires for the property
Explanation
Highest and best use is defined as the reasonably probable use that is legally permissible, physically possible, appropriately supported, and that results in the highest present value (maximally productive).
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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.
Capitalization Rate (Cap Rate)A rate used to estimate the value of income-producing property, calculated as Net Operating Income divided by property value.
Gross Rent Multiplier (GRM)A quick valuation metric for income properties calculated by dividing the property price by gross annual rental income.
Debt-to-Income Ratio (DTI)A lender's measure of a borrower's monthly debt obligations relative to their gross monthly income, used to evaluate loan eligibility.
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