Highest and Best Use

Highest and Best Use means:
a real estate appraisal term denoting the legally and physically possible use that, at the time of appraisal, is most likely to produce the greatest net return to the land or buildings over a given period. The term is generally used for Ad Valorem tax valuation purposes unless the special-use valuation is elected.

Example of Highest and Best Use:

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A vacant lot in a city is valued at $10,000 if developed for a single-family house, $20,000 as an apartment building, $25,000 as a retail store, and $30,000 as a small chemical processing plant. Because of restrictions on water supply and disposal, however, the chemical plant is not physically or legally possible, and zoning laws prohibit commercial development. Therefore, the highest and best use of the lot is for an apartment building.