HIGHEST
AND BEST USE
David Hornby
When
considering the value of a building the valuer must firstly,
determine the highest and best use of the land. The value of a
building will only equal its replacement cost new if it is new
and represents the highest and best use of the land. Highest and best
use is that use of the land which generates the highest land value
commensurate with the risk of development. Generally, that is also
the highest improved value (land and building value) as non highest
and best uses typically cause non adaptable building values to fall
to demolition value only.
EXAMPLE
Suppose
that on an industrial site there is an old cottage. There are only 3
possible alternative uses:
Using
existing use rights (assuming this would be allowed by the
controlling authority).
- DEVELOPMENT
INTO A "STANDARD" WAREHOUSE
A
use equivalent to a number already developed and successful in the
locality.
A
use based on a perceived market gap demand for motels within
large industrial areas. However, none have yet been built in such a
location.
See
pioneer land use
See
overcapitalization
See
undercapitalization