Several uses of a vacant site are legal, physically possible and produce a positive return. Which one is its highest and best use as though vacant?
Correct Answer
D) The feasible use producing the highest land value
Uses that produce a positive return are financially feasible. Of all the financially feasible uses, the one that produces the highest land value on a risk-adjusted basis is the highest and best use of the land as though vacant.
Why This Is the Correct Answer
Option D is correct because, of all the financially feasible uses, the one that produces the highest land value on a risk-adjusted basis is the highest and best use of the land as though vacant. Uses producing a positive return are financially feasible, so the remaining test is maximum productivity. Land value, not cost or size, decides the result.
Why the Other Options Are Wrong
Option A: The use with the lowest total construction cost
Option A is wrong because the use with the lowest total construction cost is not necessarily the one that produces the highest land value. A cheap project may also produce low income or low sale prices.
Option B: The use that the current owner happens to prefer
Option B is wrong because highest and best use reflects market evidence of maximum productivity, not the use the current owner happens to prefer.
Option C: The use that permits the most building square footage
Option C is wrong because the use permitting the most building square footage may not produce the highest land value once costs, demand and risk are considered. Bigger is not the test.
Legal, Physical, Financial, Maximal
Apply the four tests in order, and the last one, maximally productive, picks the feasible use with the highest land value.
How to use: Use this when a question says several uses pass the first three tests and asks which is highest and best.
Exam Tip
When several uses are already feasible, the answer is about maximum productivity measured by land value.
Common Mistakes to Avoid
- -Choosing the cheapest use to build
- -Choosing the largest permitted building
- -Letting the owner's preference decide highest and best use
Concept Deep Dive
Analysis
This question tests the final step of highest and best use as though vacant. Once uses are legally permissible, physically possible and financially feasible, the appraiser selects the one that is maximally productive. That means the feasible use producing the highest land value on a risk-adjusted basis.
Background Knowledge
The four tests of highest and best use are legally permissible, physically possible, financially feasible and maximally productive, applied in order. Financial feasibility screens for uses that produce a positive return to the land. Maximum productivity picks the feasible use giving the highest residual land value.
Real-World Application
An appraiser tests a vacant parcel for single-family homes, duplexes and townhomes, all permitted and feasible. Residual land value analysis shows townhomes produce the highest land value after risk, so she concludes townhomes are the highest and best use as though vacant.
More Market Questions
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