Whether you are buying or selling vacant or improved land, the key factor in pricing is the term - "highest and best use".
According to The Appraisal Institute the highest and best use is defined as: "The reasonably probable and legal use of vacant land or improved property that is physically possible, appropriately supported, and financially feasible and that results in the highest value."
The Appraisal Institute defined four tests that comprise factors an appraiser must consider when determining the highest and best use of a property.
The Four Tests:
1. Legally permissible
2. Physically possible
3. Financially feasible
4. Maximally productive
Other factors which contribute to the valuation of vacant land or improved property include:
1. Current market trends
2. Physical attributes
3. Location attributes
4. Current or potential performance
5. Competitive sites
6. Cost of modification vs. existing use
7. Financial proformas
Bottom line: The determination of the highest and best use sometimes requires a more in-depth analysis of the property and may require the input of experts in other areas to assist in the assessment.
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