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Highest and Best Use: The Evolving Paradigm

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Abstract

Highest and Best Use is often identified as the key concept supporting real estate use and value decisions. However, at best the concept has received ambiguous if not conflicting consideration as to its relevance in the literature of economics, finance, real estate, appraisal, and other areas of study concerned with land use decisions and valuation. This paper addresses this ambiguity and identifies the theoretical premises of Highest and Best Use as employed in the various land use disciplines. The theoretical foundations as they are synthesized form the basis of a formal constrained optimization model for land use decisions. The model's logic identifies the need to include the cost of capital and location along with the physical, legal, infrastructure, and market parameters discussed in the bulk of the economic and appraisal literature (including courses and professional practice). The financial and locational variables are needed in order to advance the use paradigm to fit current context of problems facing real estate decisionmakers.

Suggested Citation

  • Mark G. Dotzour & Terry V. Grissom & Crocker H. Liu & Thomas Pearson, 1990. "Highest and Best Use: The Evolving Paradigm," Journal of Real Estate Research, American Real Estate Society, vol. 5(1), pages 17-32.
  • Handle: RePEc:jre:issued:v:5:n:1:1990:p:17-32
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    Cited by:

    1. Jeffrey D. Fisher & George H. Lentz & K.S. Maurice Tse, 1992. "Valuation of the Effects of Asbestos on Commercial Real Estate," Journal of Real Estate Research, American Real Estate Society, vol. 7(3), pages 331-350.

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    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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