1.10.2. Highest and Best Use Considerations. Highest and best use analysis is a critical element in the development of a reliable appraisal of property containing valuable natural resources. As a first step, a market analysis should be performed to identify the market supply and demand for the resource located on the property. If no market exists for the resource, then the quantity and quality of the commodity need not be determined. The market analysis provides the foundation for the appraiser’s conclusions regarding the marketability, price, and competition for the commodity found on the property. 

If a market exists for a mineral or other resource, then a supported determination must be made concerning both the legal permissibility of extracting the mineral (or harvesting the timber) and the physical characteristics of the minerals or timber located on the property. These determinations often require special expertise, including: 

• Interpretation of permitting and other environmental requirements that may necessitate the assistance of a consultant with specialized knowledge and experience in the relevant market. 

• Studies regarding the physical characteristics of the minerals that are usually conducted by specialists (usually geologists and/or engineers) who make determinations concerning such important factors as the location, quantity, quality of the mineral deposit, and any variations in the quality that might be found on the property. 

• Additional determinations regarding such factors as accessibility (due to topographical constraints or distance to road or rail line, for example) and problems and costs of extraction or harvest. 

• A cruise plan, timber cruise, and check cruise for land containing valuable timber. 

This information provides the basis for developing an opinion of the value of the property using the sales comparison and income capitalization approaches to value. However, before the adoption of these interpretations, studies, or determinations, it is the professional responsibility80 of the appraiser to thoroughly analyze and understand the reports prepared by other experts and adopt them only if the analysis and conclusions were prepared according to appropriate standards, are sound, and are adequately supported. 

As with all other appraisals prepared under these Standards, the appraiser must identify the most likely purchaser and user of the subject property as well as the timing of the use (for example, mineral extraction or timber harvesting). In addition, a larger parcel analysis must be completed. For property containing valuable natural resources, this analysis may require an examination of minerals or timber holdings beyond the land being acquired by the government that meet the three tests of the larger parcel.81

80 See Section 1.13 for further discussion of an appraiser’s reliance on the work of other experts.
81 See Section 4.3.3 for further discussion of the legal requirements for a larger parcel analysis