What is the first step in determining the highest and best use?

Determining the highest and best use of a property is a critical component in the valuation process. The first step in this analysis is to identify what is legally permissible. This involves understanding zoning regulations, land use restrictions, and any easements or covenants that might affect how the property can be used. Legal restrictions can greatly affect the viability of potential uses, and if a proposed use is not allowed under current regulations, it is not a valid option.

Once the legally permissible uses are identified, the appraiser can evaluate the other criteria: physically possible uses (which look at the actual physical characteristics of the property), financially feasible uses (which analyze the economic viability), and maximally productive uses (which determine which of the feasible uses generates the highest value). However, without establishing what is legally permissible, none of the subsequent analyses would hold much meaning since the property cannot be used in a way that defies local laws or regulations.