In real estate appraisal, what does the term 'highest and best use' refer to?

The term 'highest and best use' in real estate appraisal refers to the most profitable legal use of a property. This concept is crucial for appraisers as it helps determine the value of the property based on its most advantageous use. The highest and best use must be legally permissible, physically possible, financially feasible, and maximally productive. By identifying the highest and best use, appraisers can assess what the property can be used for in a manner that will yield the highest possible return on investment. This feature distinguishes highest and best use from mere market comparisons or cost assessments, as it focuses explicitly on legal and economic factors impacting value.