The Highest and Best Use is a reasonable use that, at the time of the appraisal, is most likely to produce the greatest net return of the land and/or improvements over a given period of time. The highest and best use is determined by evaluating the quality and quantity of income from various uses. A highest and best use analysis is necessary on every appraisal.
The highest and best use must be legal, possible, and feasible.
For appraisal purposes land is always valued as if vacant and available for development to its highest and best use. The highest and best use is not always obvious or easily determinable and requires judgment on the appraiser's part.
If the property is improved, it is likely that the current use is the highest and best use. For an alternative use of improved land to be the highest and best use, the land alone must be worth more than the value of the land with improvements. If the land alone is worth more than the value of the land including improvements, the improvements will be demolished.
If land use is other that the highest and best use, functional obsolescence occurs.
A discussion of private and public limitations are important influences on real estate value and would normally be discussed in the highest and best use section of the report.