Valuation
The conclusion that decides everything after it
Before an appraiser can say what a property is worth, the appraiser must say what it is for. Set that premise at the current use when the market would have paid for something more, and every figure that follows is too low.
The standard
Reasonably probable, not merely conceivable
The test is not what a property could theoretically become. It is what a reasonably informed buyer would have had in mind when deciding what to pay, at the valuation date. That standard is deliberately pitched between two errors.
The first error is pricing a dream. A field with no services, no road frontage and agricultural zoning is not a shopping centre site because a shopping centre would be worth more. The second error is pricing only the present. A field on the edge of a growing town, inside the urban growth boundary, adjoining two recent rezonings, with an access road already built, may well be a development site, and valuing it as pasture ignores what any buyer would have paid.
Evidence
What supports a use above the current one
Zoning and plan designation
A zoning that already permits the use is the strongest evidence. A plan designation pointing towards it is next.
Rezoning history nearby
Approvals granted to comparable parcels show what the authority is willing to permit.
Market demand
Absorption of similar sites, enquiries, and sales at prices only the higher use would justify.
Services and access
Water, sewer, power and a usable road frontage make a use physically possible rather than aspirational.
Physical suitability
Size, shape, flood status and topography that accommodate the use without extraordinary cost.
Comparable sales
Sales of similar land bought for that use are the clearest demonstration of what the market paid.
In partial takings
Two conclusions, not one
A partial taking requires highest and best use to be concluded twice: for the whole property before the taking, and for the remainder after it. The two can differ, and when they do the difference is usually where the damages are.
A twelve acre site zoned for subdivision with a six lot minimum is a development site. Take four acres and leave eight that will yield three lots instead of six, and the remainder is still a development site but a different one. Take seven and leave five below the minimum, and the remainder is a rural residential lot. That change of category, not the acreage, is what moves the number.
A report that concludes highest and best use once has assumed the remainder is simply a smaller version of the whole. That assumption deserves to be stated and tested, not implied.
Questions about highest and best use
My land is zoned agricultural but everyone knows it will be developed. Does that count
It can, where a rezoning is reasonably probable rather than speculative. The evidence needed is the plan designation, the record of similar approvals and market behaviour. A general expectation is not enough.
Can highest and best use be the current use
Frequently, and legitimately. The point is not that it should always be higher. The point is that the conclusion should be reasoned rather than assumed.
The appraiser says my house is worth less than the land it sits on
That is an interim use conclusion, where the highest and best use is redevelopment and the existing building contributes nothing or has a negative value through demolition cost. It is correct in some markets and overused in others.
Does the project affect highest and best use
It should not, for the before value. The project influence rule requires value to be assessed as though the project were not planned. For the after value the project is in place and does affect what the remainder can be used for.
Get a valuation question answered
If an offer has arrived and the number does not match what you believe the property is worth, the appraisal behind it is the place to look. Start with the pages below.