Highest & Best Use of a Parcel
When buying or building homes, one must always keep in mind the “highest and best use theory” of a particular parcel of real estate and its impact on that parcel. It should be ascertained whether that property is truly being used to its “highest and best use.”
The four criteria which determine the highest and best use of a parcel of real estate are normally considered to be 1) governmental/legal, 2) environmental, 3) social, and 4) economic. These are considered value forces. However, if one or more are not present, in all likelihood, there is minimal or no value present.
Under the government/legal criteria, if one owned a parcel of land and wanted to construct a small retail business on it but the zoning was only for single family dwellings, then the governmental/legal force of the highest and best use theory would not permit a business in that location. For instance, most folks would not want to build or buy a new $200,000 home next to a business.
In regards to the impact of environmental conditions of highest and best use, building a home or development next to or in close proximity to a refuse site or wetland area would most likely not be a good idea. The end-result value of your home would be negatively impacted by the use next door.
Economic highest and best use criteria can get in the way of you planning to build your dream home. Your Uncle Bill has a building site he will sell you real cheap. Sounds good, but what if Bill’s site is surrounded by homes under $100,000, and your dream home is going to cost $250,000? The economic factor of highest and best use says no way do we want to build our dream home on Bill’s site.
An example of social criteria of highest and best use would be building in close proximity to a maximum security prison. Certainly the value of your new home would be severely discounted to the next potential buyer. A single-family dwelling may not be the highest and best use for that particular parcel.
The variations in the market will determine highest and best use. Talk to you REALTOR® or an appraiser before you make those decisions.
As appearing in The Repository 5-20-16