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100 Acres,Penrose,CO <br /> HIGHEST AND BEST USE <br /> An understanding of the concept of highest and best use is necessary in the analysis and valuation of <br /> real property. The Dictionary of Real Estate Appraisal, Second Edition 1989, published by the <br /> Appraisal Institute, defines highest and best use as follows: <br /> The reasonably probable and legal use of vacant land or an improved property, which is <br /> physically possible, appropriately supported,financially feasible, and that result in the highest <br /> value. The four criteria the highest and best use must meet are legal permissibility, physical <br /> possibility,financial feasibility, and maximum profitability. <br /> Highest and best use is that use which results in the highest net return attributable to the land over a <br /> given period of time after first deducting all charges attributable to any improvements. The concept <br /> means that whatever improvements are selected for a site, they must earn sufficient net income to pay <br /> an appropriate rate of return on the cost of the improvements, and that use that provides the highest <br /> return to the land is considered the highest and best use. It is basically that use that provides the highest <br /> value of the land based on economic return. <br /> The concept also requires not only the proper type of development for the site but also the maximum <br /> use of the site for that type of development. The highest and best use of a site must be analyzed as if it <br /> is vacant and also as it may already be improved as of the date of the appraisal. If the site is improved, <br /> then its highest and best use will probably continue to be as it is being used until the land value in the <br /> next highest and best use, as if vacant, exceeds the total value of the property in its existing use. In <br /> some situations there may be more than one, and sometimes there may be several uses which can truly <br /> be classed as the highest and best use for a property. <br /> The criteria for determining highest and best use, both as if vacant and as improved, are that the highest <br /> and best use must be: <br /> 1) legally permissible; <br /> 2) physically possible; <br /> 3) financially feasible; and <br /> 4) maximally productive. <br /> These criteria are usually considered sequentially. A use may be financially feasible, but this is <br /> irrelevant if that use is physically impossible or legally prohibited. Only when a reasonable possibility <br /> exists that one of the prior, unacceptable conditions can be changed is it appropriate to proceed with the <br /> analysis. If, for example, current zoning does not permit a potential highest and best use but it is <br /> possible the zoning could be changed,the proposed use can be considered on that basis. <br /> Highest and Best Use As If Vacant <br /> Legally Permissible <br /> The subject is zoned I (Industrial District). This zoning is established to provide for general industrial <br /> and manufacturing activities. The permitted lot size is 4 1/2 acres with no public water or sewer. Given <br /> the current state of the market and the adjoining uses it is unlikely that Industrial development is in the <br /> near future for the subject site. Given its varied terrain and river frontage it is more likely to be for <br /> future residential use. This could be accomplished through either a straightforward zoning change or <br /> through use of the watchman's quarter provision of the zoning code. <br /> Physically Possible <br /> The site topography, shape, etc. are conducive to development of the legally permitted uses. If it were <br /> 16 <br /> ©2012 Grantham Appraisal Service <br /> All Rights Reserved <br />