Highest-and-best-use study: Why you need this before developing your property

Developing your own land into a high-value property takes a lot of work. There is a lot of thought that goes into the planning of a property development before the construction and development occurs. This is where the highest and best use concept comes in.

Highest and best use — what it is

In the world of real estate appraisal and advisory, there is a concept called “highest and best use” that originated with early economists such as Irving Fisher. This means “reasonable, probable, and legal use of vacant land or an improved property that is physically possible, appropriately supported, and financially feasible and that results in the highest value.”

The four criteria

Real estate consultants, advisors, and appraisers have four criteria that help determine what is the highest and best use of a property. These require the right expertise and research to properly evaluate each criterion and would need different stakeholders at each step. 

  • Physically possible

First, the development must fit the surrounding demographics and commercial activity of the location or else it would not be productive. When your land is a 3,000 sqm real estate, you can remove a subdivision development from your options. Subdivisions require a much larger space to work on. Further: Are utilities and drainage good in the area? How is the accessibility? Engineers can be consulted with regards to this criterion in determining the property’s suitability. 

  • Legally permissible 

What can developers do to the property that is allowed by the law, such as zoning and other property regulations? Are there any restrictions in the land’s deed? If the plan does not meet this requirement then that is not making the most out of property. Lawyers and land experts can be tapped to determine if certain construction types are suitable for the given property.

  • Financially feasible

The market of the location and demographics must also fit the intended use for the property as this can affect the land’s value. How would the building of the property compare to other properties in the location? Is the cost to upgrade much more expensive than the cost of properties in the area?  Real estate experts can offer consultation on key use of property for every location if it is feasible. 

  • Maximally productive 

Under this criterion, the highest and best use must be profitable. But this question also asks which option will provide the maximum benefit to the owner. 

An owner would often have an objective in mind. In cases where the owner wants to sell the land, a residential condominium might be ideal, whereas a hotel, office building, or retail center would suit the owner if they do not wish to dispose of the land. 

It is important that real estate consultants who produce these highest and best use studies consider such goals albeit there will be times that the goal might not be feasible at all.

Getting appraisal for your land

Appraisal is a key part in undertaking the next step to developing your land. Get in touch with professionals with experience in handling appraisals of all sorts of properties all around the Philippines. Santos Knight Frank is a real estate services firm offering appraisal services. With a great track record in successful projects, you can trust Santos Knight Frank for appraisal, brokerage, property management, and more. Visit the website to learn more http://www.santosknightfrank.com/.

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About Santos Knight Frank

Santos Knight Frank provides global real estate services. Since the company first opened its doors in 1994, it has become the Philippines’ first and largest fully integrated real estate services provider, with clients that include multinational corporations and institutional investors, as well as occupiers, owners and developers of real estate locally and across the globe.

The company’s partner, Knight Frank, is the largest independent global real estate consultancy. Founded in 1896 and headquartered in London, Knight Frank operates in more than 523 offices in 60 countries across the globe, including the strategically important partnership with Newmark Knight Frank in the U.S. (with Newmark Cornish & Carey in the West Coast).