A valuer is assessing a property in a Victorian growth corridor where surrounding vacant lots have recently sold for more than the improved value of the subject property. Which valuation principle best explains this situation?
Correct Answer
A) The principle of highest and best use
The principle of highest and best use states that a property's value is determined by its most profitable legally permissible, physically possible, and financially feasible use. In growth corridors, vacant land may be worth more than improved properties if the existing improvements do not represent the highest and best use (e.g., redevelopment for higher-density housing).
Why This Is the Correct Answer
Highest and best use is the legally permissible, physically possible and financially feasible use that gives the highest value. Where vacant lots sell for more than the subject with its old house, the house is not the land's highest and best use, and the land is worth more as a development site.
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