What is the definition of Highest and Best Use in property valuation?

The definition of Highest and Best Use in property valuation refers to the most economically profitable use of a property that is legally permissible, physically possible, and financially feasible. This concept illustrates that the use which generates the highest net return over time is crucial in determining the property's value.

Choosing the use that maximizes net returns addresses the principle of considering not just the current state of the property but also its potential to produce income or appreciation. This aligns with the idea of optimal investment, where property is evaluated for its value based on the best alternative use that yields the most significant financial benefit to the owner.

Legal and physical constraints, such as zoning and environmental regulations, play a role in defining permissible uses, but these factors are not the sole determinants of Highest and Best Use. The current use of the property or the average market value can give insight into its status but do not capture the potential of maximizing returns, which is the essence of the concept.