What is meant by "highest and best use" in appraisal?

The concept of "highest and best use" refers to the most profitable legal use of a property that is physically possible. This determination takes into account several factors, including zoning laws, the physical characteristics of the property, its location, and the current market conditions. The highest and best use is essential in appraisal because it establishes the foundation for determining the property's market value.

In practice, appraisers consider not only what is legally permissible but also what is feasible and maximally productive for the property. This means that even if a particular use is highly desirable or popular, it must also comply with legal restrictions and practical limitations—such as physical construction constraints and the economic viability of that use.

This concept does not focus on historical uses or sentimental value, which may not contribute to the current market valuation of the property, nor does it solely rely on popularity among buyers, as many appealing uses may not be the most viable from a financial perspective. Instead, it emphasizes a balanced approach that optimally aligns with market demand and legal standards to maximize the property’s potential value.