1. 1 Highest and Best Use or Most Probable Use Wayne Foss, MBA, MAI Wayne Foss Appraisals, Inc. Email: wfoss@fossconsult.com

2. 2 Definition ßThe reasonably probable and legal use of vacant land or an improved property, which is physically possible, appropriately supported, financially feasible, and that results in the highest value. ßNote: ßPhysically possible ßLegally permissible ßFinancially feasible ßResults in the highest value

3. 3 Applies to: ßLAND or SITE as though vacant and the ßPROPERTY as presently improved

4. 4 Note: ßThe “best use” is estimated ßthe indicated use comes from the market ßis subject to limitations of ßphysical nature ßlegal nature ßeconomic nature ßis time sensitive; dynamic and may change over time

5. 5 Purpose and Use ßTo help identify the market within which to subject competes ßTo help identify comparable and competing properties for use in the Sales Comparison approaches for both Subject Site and Total Improved Property ßTo help identify points of depreciation and obsolescence ßTo help identify alternate uses

6. 6 Purpose, Uses - - continued…... ßTo help understand the competitive market ßHow competitive ßPrices ßLiquidity, how long to sell property ßWho are the participants ßWhat influences them ßTrends ßTo help identify most effective marketing, promotion, and financing ßTo better understand the timing in the market, when uses are premature or past due.

7. 7 The Process of Analysis ß1. What uses are LEGAL ßPublic restrictions, zoning ßPrivate use restrictions ßOutlook for change in legal uses ßWhat is permitted affects productivity, market appearl, competitiveness - and thus probable price and value.

8. 8 The Process of Analysis -- continued….. ß2. Of the legal uses, identify the PHYSICALLY POSSIBLE USES. ßConsider for the site: ßsize, configuration, slope, topography, etc. ßConsider for improved property: ßbuilding condition, design, layout, utility, outlook, parking, access, obsolescence

9. 9 The Process of Analysis -- continued….. ß3. Of the legal and physically possible uses, which uses are economically possible, sensible, or financially feasible. ßWhat uses produce property worth more than cost? ßWhat uses produce competitive return considering risk? ßWhat is being built, and succeeding in the market area?

10. 10 The Process of Analysis -- continued….. ß4. Of the uses that are legally permitted, physically possible and financially feasible identify the uses(s) most profitable or that: ß produce the greatest rate or money amount of return, or ßresults in the highest value

11. 11 Estimating Highest and Best Use involves... ßA “filtering process” after: ßAnalysis of the appraised property ßAnalysis of the market ßsupply and demand of comparable and competing and alternative properties. ßThe result of the analysis must answer several questions.....

12. 12 Estimate of Highest and Best Use results in several conclusions ßWho is the next BUYER likely to be - what type, motivation, planned use, source of funds, and from where. ßWho is the next USER likely to be - what use, for how long a term, nature of business or activity ßWhat productivity is expected from the property continued

13. 13 Estimate of Highest and Best Use results in several conclusions ßWhat is the expected USE ßWhat is the expected timing - i.e. ßwhen ready for that use? ßHow long will it last, duration ßand for the improvements, specifically...

14. 14 Estimate of Highest and Best Use results in several conclusions ßFor the Highest and Best Use of the Property as Improved, the outlook for the improvements is: ßNo change? ßRepair? ßRemodeling? ßRenovation? ßReplace improvements with - - - - ?

15. 15 Highest and Best Use ßThe present use is presumed to be the highest and best use unless the appraiser can show the logic and probability of reasonable change based on market evidence. ßWhat is the market saying? ßRemember… The highest and best use conclusion needs the following:

16. 16 Special situations ßSingle Use ßdemand might exist for only one property with this use ßInterim Use ßhighest and best use may change in the foreseeable future ßinterim use may or may not contribute to the value of the site

17. 17 Special situations …continued... ßLegally nonconforming use - ßa use that was lawfully established, but now is nonconforming to current regulations ßzoning may create underimproved or overimproved properties ßMultiple uses ßH&BU may include more than one use for a parcel

18. 18 Highest and Best Use ßEstimate, with support, the most probable ßUse ßUser ßBuyer ßTiming

19. 19 So That’s Highest and Best Use Wayne Foss, MBA, MAI, Fullerton, CA USA Phone: (714) 871-3585 Fax: (714) 871-8123 Email: wfoss@fossconsult.com