What is a "Highest and Best Use" Analysis?

A highest and best use analysis tells you that the value of the property is directly proportional to the use of the property. This lets you know, as a potential purchaser, where your highest profit potential lies and with what use of the property.
There are a few things that go into determining the highest and best use value. Analysts must use relevant information about the area's supply and demand, market trends, adaptability of the property and the legally allowed uses of the property.
The first thing to determine in the analysis is what is legally allowed. Zoning and government regulations must be considered. Neighborhood deed restrictions are also considered. So, you can't say that this plot of land would make the most money if you built condominiums on it if it is in the middle of a neighborhood that does not allow it. Getting a highest and best use analysis is a good way to take advantage of the extensive knowledge, experience and expertise of the analyst, saving you precious time and money.
The highest and best use analysis will not only tell you which type of venture may bring the land value up to its highest point, but also if these ventures are financially feasible. So, you won't just find out what it would cost to develop a site, but also which type of development would result in the highest market value.
Another thing that goes into the analysis equation is maximizing the productive use of the property. Let's say that the highest possible legally and physically feasible value of the land is to develop a retail strip mall. That is not necessarily the route you should choose. The highest and best use analysis will tell you not only the highest value of the land possible, but also which use will net the most profit for you, the developer. The highest value does not always net the highest profit due to costs of development.
The analysis also lets you easily compare the cost of developing a property to the potential market value of that property. If the market value should be higher than the cost to develop it, then you can get a good idea of what percentage profit you can expect. If it is lower, you know not to waste your time.
Getting the highest and best use analysis can actually change your mind about what you were planning on doing with your property. A lot of inexperienced land developers looking to build on their land will have their own ideas about what to build. Some will want to develop a retail mall, a restaurant, or manufacturing plant. After they get their highest and best use analysis, they may discover that their profits would be considerably higher and their costs considerably lower if they used the land to develop condominiums instead.
The bottom line is that a highest and best use analysis lets you know not which property use will net the highest property value, but which use will help you gain the most profit from the development.

Stacy Prosney is an award winning author and writer of web content for many different web sites.
She is well versed in many different areas, including real estate development, real estate investment consulting
and land development consulting.