Property ValuationIntermediateNorth Carolina Exam

Highest and best use is defined as the use that is:

AThe current use of the property

BLegally permissible, physically possible, financially feasible, and maximally productiveCorrect

CThe use preferred by the property owner

DThe use that generates the most tax revenue for the city, subject to the usual exceptions

Why Legally permissible, physically possible, financially feasible, and maximally productive Is Correct

Answer B: Legally permissible, physically possible, financially feasible, and maximally productive

Highest and best use is the legally permissible, physically possible, financially feasible, and maximally productive use that results in the highest property value.

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.

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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.

Net Operating Income (NOI)

The annual income generated by an income-producing property after subtracting operating expenses, but before debt service.

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