Homeowner Tips: The Highest And Best Use Principle

The highest and best use principle initially comes from from American property law. It is also connected conceptually to principles of property appraisal. It can be extrinsically linked to the worth of your home, as well.

The highest and best use principle is also just called HBU and simply refers to a specific use that is likely to produces the highest possible value for the real estate. What it ultimately does is help locate properties that are potentially more valuable if they were used for a different purpose. This can be used especially in real estate appraisals to assess a property at its highest possible worth, which in turn maximizes its value and increases the money you as a homeowner can ultimately make from it.

Each potential use must go through a set of tests in an effort to establish a property's highest and best use. The use must usually meet tests to guarantee it is legally allowable, physically possible, financially feasible and maximally productive, although this can change.

Only uses that are permitted by law can be deemed highest and best uses. If it is not allowed by government ordinances, zoning, restrictions in deeds and covenants, it is not a legally allowable use.

The second test determines a property's eligibility by the property's size, shape and terrain. It does not meet this criteria for highest and best use if the use would require something like a bigger piece of land, because it would not be physically feasible. It would also fail this test if the highest and best use necessitates a flat parcel of land and the land in question is rocky.

Financial feasibility is also necessary for a property's highest and best use as a third test. Any proposed highest and best use of the property in question must create enough revenue to rationalize such things as the construction costs, including a gain for the builder. There would be no way for it to meet the financial viability test if a proposed highest and best use would end up costing more on the property's improvement than it could hope to earn in revenue.

Lastly, the highest and best use must generate the highest possible gain for the builder. No matter what could be actually constructed on the property, a property's highest and best use may still be designated. It must meet all four of these specific criteria for a highest and best use of a property to be guaranteed.

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