Evaluating Land Value & Potential: A Guide To Highest and Best Use Analysis

STORY DAX HAYDEN, HAYDEN OUTDOORS REAL ESTATE

Whether one is looking to purchase land for the first time, already the owner of a legacy property that has been passed down for generations, or somewhere in between, there is a broad spectrum of ownership opportunities in land real estate. It is important for a landowner to understand the value that their property holds as well as their role in bringing their investment to its maximum potential.

Highest and best use is just that, discovering the maximum value one’s property can provide them and working to realize this value. By definition, highest and best use for any property is the use which is legally permissible, physically possible, financially feasible, as well as the most profitable. When it comes time to determine highest and best use, a landowner can view their property as vacant, whether or not buildings and improvements exist, and decide the highest valuation of the land with its full potential. They could also choose to evaluate the property with its existing structures and improvements, if any, and decide whether these should be retained, modified, or demolished depending on the future highest and best use of the property.

It can be difficult to determine what is legally permissible when dealing with crops, land development, water rights, or an improvement of value. Due diligence must be done to determine the validity of the possible improvements and the likelihood of their approval from city, county, or state governments. A landowner must make sure the improvements are physically possible within the constraints of available equipment, location of improvements, soil types, and structure in general. Clearly, the improvements must be financially feasible so the landowner is able to finance the operation through the improvement process. Obviously, for an income producing parcel, a landowner should also insure profitability in the present and long-term.

Determining highest and best use for farm, ranch, and recreational properties is highly critical for a landowner in order to maximize the income producing potential of the property or the subjective overall benefits for the landowner. The owner must take into consideration the market in the area for agricultural and rural properties to determine if the current use brings the highest economic return to the parcel. After looking into income producing uses, it must be considered that the return should be high enough to cover operating expenses and include other improvements necessary to reach its potential.

Tools and technology aid in determining highest and best use. These tools include drones, soil monitors and GPS on equipment. For example, using a chart to plot the most productive and least productive parts of a farm field with technology and yield monitoring systems, farmers can determine which soil types are most suitable for high yields and which soil types simply lose money and would be much better out of production and in habitat. In an advancing world, markets continue to change and adapt with new technology. Emerging markets like organics, regenerative farming, carbon sequestration, and even specialty crops like hemp continue to alter the highest and best use of any particular property.

“Determining the highest and best use for farm, ranch, and recreational properties is highly critical for a landowner”

—DAX HAYDEN

When considering the economic return of a parcel, it is imperative for landowners to maintain good knowledge of the markets both locally and regionally. Many times, in farmland, highest and best use can differ greatly by things as simple as crop selection and trends in value with commodities. We have seen a huge push in recreational value being the highest and best use for what used to be only a commodity driven market. Usually, it is a combination of utilizing the land for multiple facets, such as leaving habitat for hunting and maintaining good cropland.

If it is determined there is not an income producing use, the landowner can analyze other opportunities that create either personal value or a benefit equal to the amount needed to bring the property to its potential value. The merit of a property for hunting, fishing, or other recreational opportunities may be more valuable to the owner for personal use than its overall income producing potential. This should be considered for offsetting a lack of income or cost for any improvement or development.

While many landowners may want a piece of land solely to produce a profit, not all will achieve a return. Aside from converting to a solely recreational use, a combination of uses could prove even more beneficial. An example of this would be an income producing cattle operation that also provides world class hunting. Additionally, many owners want to live and raise families on their profitable land. In this scenario, the benefit of the home’s location and the lifestyle the family experiences on the property could provide more utility to the owner than the monetary amount of the profitable use. Overall, it stands up to the landowner to determine what worth a piece of property provides them considering housing, income, and unlimited recreational opportunities.

Understanding the highest and best use of land can help a landowner design their property with awareness of its best value both in the market and personally. Landowners looking to improve their property as well as those looking to launch their journey of land ownership can benefit by reaching out to a land professional. Every piece of land and landowner are different, and with such a significant investment, it is essential to find the upmost value for you. At Hayden Outdoors, we pride ourselves in evaluating and calculating the “Highest & Best Use” of your property, and my team would be happy to assist you in better understanding land values in your area. °