What does the term "highest and best use" refer to in real estate?

The term "highest and best use" refers to the most profitable use of a property that is legally permissible, physically possible, financially feasible, and maximally productive. This concept is central to real estate appraisal and investment analysis because it considers the ideal use that would generate the greatest return to the landowner.

When a property is evaluated for its highest and best use, various factors are taken into account, including current zoning regulations, the physical characteristics of the property, and market demand. This comprehensive analysis helps determine the most advantageous way to use the property to maximize its value.

While other definitions might touch upon aspects of zoning or legality, they do not fully capture the essence of the "highest and best use" concept, which is fundamentally tied to profitability and maximization of economic return.