What does the principle of highest and best use focus on?

The principle of highest and best use is a fundamental concept in real estate valuation that focuses on determining the most profitable legal use of a property that is physically possible and financially feasible. It emphasizes selecting the use that will generate the maximum return on investment over time. This principle takes into account factors such as the current market conditions, zoning regulations, and the property's characteristics to identify the use that would yield the highest overall value.

This principle is crucial for appraisers and investors as it guides decision-making processes regarding development, investment strategies, and property improvements. Understanding the highest and best use allows real estate professionals to make informed evaluations and recommendations that align with maximizing value based on market dynamics. Thus, focusing on the maximum return over time reinforces the core objective of real estate investment which is to enhance profitability and overall asset value.