Examples of Highest and Best Use

Example:  A single-family residence is located on a busy street and is zoned commercial.  A similar house is just a block away but in a subdivision.  It is worth $150,000.  A developer is willing to buy the subject property, tear it down, and build an office building.  The developer has offered $200,000 for the subject property.  The highest and best use for the subject property is probably as an office.

 

When the land is worth more that the house and the improvements on it, then the highest and best use is a use other than the current use.

 

Example:  Gulf Oil Company built a small convenience store at a busy intersection 10 years ago.  The building will be productive about 20 more years.  In the 10 years since the store was built, land prices have skyrocketed to the point that the present value of the income from the store is less than the value of the land.  Gulf sells the store and the new owner tears it down, assembles adjacent properties, and builds a high rise office/retail complex.  Since value of the income from the sale of the property exceeded the present value of the income from convenience store sales, the store was no longer the highest and best use.

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