Property Valuation
The highest and best use of a property is defined as the reasonably probable use that is:
AThe use that produces the highest gross income regardless of cost
BLegally permissible, physically possible, financially feasible, and maximally productive✓ Correct
CThe use currently in place on the property
DApproved by the local zoning authority for the site
Explanation
Highest and best use must meet all four criteria: (1) legally permissible under applicable laws and zoning, (2) physically possible given the site's characteristics, (3) financially feasible (can generate a profit), and (4) maximally productive (generates the highest return).
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Key Terms to Know
Zoning
Local government regulations that control land use by dividing areas into zones specifying permitted uses, building sizes, and densities.
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.
AppraisalA professional estimate of a property's market value prepared by a licensed or certified appraiser.
Math Concepts
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