Most probable use

The most probable use of a property is determined in the marketplace by the resolution of conflicting forces. Most probable use is similar to another model called, highest and best use Highest and Best Use. This earlier model did not recognize the conflict between forces, different values among the marketplace players, nor significant roles for uncertainty nor for the subjectivity of the observer.

The forces affecting most probable use were categorized by Graaskamp (James Graaskamp, The Appraisal of 25 N Pinckney: A Demonstration Case for Contemporary Appraisal Methods (Madison, Wis.: Landmark Research, 1977) into three main groups which interact in this compromise:

(1) space users (consumers);

(2) space producers (suppliers); and

(3) various agencies (infrastructures which include municipal governments and their land use regulations, health, utilities, interest groups and community associations).

Each of these three groups function under budgetary constraints and regular cyclical cash flow restrictions. The feasibility of a project depends on the satisfaction of various criteria for each of the groups, rather than strictly the maximization of profit or amenities for a single group.

The market factors, the institutions and the individuals involved are always to some degree, in conflict with each other. The forces in a community determining land use never support the

identical proposed use. The reality is that actual land use is always a compromise, land usually not the very best compromise possible if resources were not limited.

Comparison To Highest & Best Use

One of the earliest references to highest and best use is from the minutes of the Maine Legislature (1831) "...the land was classified preceding such change of use, had such real estate been assessed at its highest and best use..."  The terminology and concept are little changed over the past hundred and eighty years.

Better models exist than the traditional model of highest and best use that says four factors – profitability, legality, physical possibility, and financially feasibility – move with almost clock-like precision to yield a single inexorable result.

While profitability is a significant consideration, most profitable use is rarely the actual use that a property is put to. Most often the resulting use is based on a compromise among the often competing factors. Many sciences have moved past the belief that we can be entirely objective in our observations. In physics, for example, the effect of the mass of the billiards player on the trajectory of the ball can actually be measured. (*cite) The model, of highest and best use inclines the practitioner not only towards a clock-like model, but also towards a reductionist view – that the norm represents the group. But this is clearly a poor representation in real estate transactions where buyers and sellers represent many sets of values, opportunities and goals, giving rise to a range of acceptable market value.

The thought that one could predict the direction of purchasing power 10 years from now, let alone 100 years (which can be the lifetime of a building), may have been reasonable in 1920. Now, it is not.

Since the coining of the phrase highest and best use as early as the 1830s, society has become increasing respectful of cultures other than the traditional owners of commercial real estate in North America. The relative importance of wealth, profit, home-life and relationships has always varied from group to group. But now that fact is being respected. The words of the old phrase beg the questions: “Highest” on whose scale? “Best” for whom?

In Lincoln North's ('The Concept of Highest and Best Use' (Winnipeg, Manitoba: Appraisal Institute of Canada, 1981) monogram, he states, "The only stand alone definition for highest and best use is most probable use. So even as early as 1981, it was recognized that the term, highest and best use, was obsolete. The reasons why the appraisal profession has been slow to change was articulated, again by James Graaskamp ('Institutional Constraints On, and Forces for, Evaluation of Appraisal Precepts and Practices' The Real Estate Appraiser and Analyst (Spring, 1986)23-34.

Plain meaning of the Terms

Finally, on occasion two or even three different uses are viable and may even have similar probabilities of realization. Hence, even the terminology, “most probable use” is a better descriptor of the actual marketplace phenomena than is “highest and best use,” which implies one use clearly in first place.

In a sentence, the most probable use is something less than the optimal reconciliation of the objectives of various groups and individuals.

BIBLIOGRAPHY

Thair, Steven, " What's the Use? Most Probable Use Versus Highest and Best Use," The Appraisal Journal, (American Institute of Real Estate Appraisers, April 1988): 190. Reprinted in the Journal of the American Right of Way Association, 1989.

Thair, Steven, " What's the Use?," The Canadian Appraiser (Appraisal Institute of Canada, Winter 1988): 18.