Property Valuation
The 'highest and best use' analysis in an appraisal determines the use that is:
ACurrently being made of the property
BLegally permissible, physically possible, financially feasible, and maximally productive✓ Correct
CPreferred by the property owner
DRequired by current zoning
Explanation
Highest and best use is the reasonably probable use of a property that is legally permissible, physically possible, financially feasible, and produces the maximum value. This analysis forms the foundation of any appraisal since value is based on optimal utilization.
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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.
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.
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