1.4.5. Four Tests. First, the appraiser should form an opinion of the highest and best use of the land, as if vacant. If the land is improved, the appraiser forms an opinion of the highest and best use of the property, as improved. The highest and best use of some property cannot be reliably estimated without extensive marketability and/or feasibility studies, which may require the assistance of special consultants in particularly complex assignments.46 To be a property’s highest and best use, the use must be (1) physically possible; (2) legally permissible; (3) financially feasible; and (4) must result in the highest value. Each of these four tests must be fully analyzed in the appraisal development process. A property’s highest and best use will ordinarily be its existing use, as an owner will normally put property to its maximum (highest-value) use. A determination that the property has a different highest and best use than its existing use requires evidence that the property is physically and legally adaptable for that use and there is market demand for that use in the reasonably near future. 

In assignments involving improved properties, it is important to fully develop both analyses of highest and best use (as if vacant and as improved). Land can be influenced by the size, shape, function, and remaining life of the improvements. For example, there may be surplus or excess land when considered in light of the existing pattern of development. For this reason, all four tests of highest and best use must be addressed in the analysis of highest and best use as improved. 

For any highest and best use that will require a property to be rezoned, the probability of that rezoning must be thoroughly investigated and analyzed. Likewise, the probability of obtaining any other forms of government approvals necessary for a proposed highest and best use must be investigated and analyzed. The extent of the investigation and analysis required to meet this requirement can be found in Section 1.3.1.3. 

Generally, the government’s intended use of the property after acquisition is an improper highest and best use and cannot be considered. It is the property’s market value that is to be estimated, not the property’s value to the government. If it is solely the government’s need that creates a market for the property, this special need must be excluded from consideration by the appraiser. The government’s intended use of the property can only be considered as a potential highest and best use if there is competitive demand for that use in the private market, separate and apart from the government project for which the property is being acquired. Section 4.3 discusses the legal bases for these requirements.