Property Valuation
An Oklahoma appraiser determines that a commercial property's highest and best use is office development, even though it is currently used as a parking lot. Highest and best use analysis considers:
AOnly what the current owner wants to do with the land
BWhether the use is legally permissible, physically possible, financially feasible, and maximally productive✓ Correct
COnly current use regardless of alternatives
DOnly the government's preferred use
Explanation
Highest and best use is the reasonably probable use that is legally permissible, physically possible, financially feasible, and maximally productive, resulting in the highest present value. This analysis determines what the land is worth based on its optimal potential use.
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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.
Comparable Sales (Comps)Recently sold properties similar in size, condition, and location used by appraisers and agents to estimate a property's market 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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