What is the principle of "highest and best use"?

The principle of "highest and best use" relates to determining the most advantageous use of a piece of real estate, which should maximize its value. This principle specifically focuses on the most profitable permissible use of a property, taking into account zoning laws, environmental regulations, and any other legal restrictions that may apply.

By identifying the highest and best use, appraisers and real estate professionals can ascertain the potential value of a property under the most beneficial circumstances. This means considering how the property could be used in a way that would yield the greatest financial return, whether through development, redevelopment, or even holding the property for future appreciation.

In contrast, identifying a conventional use or the least profitable use of a property does not align with the goal of maximizing value, and considerations about tax benefits, while important, are only one aspect of determining the highest and best use. Thus, focusing on the most profitable permissible use directly links to the financial interests of both owners and investors in real estate.