Financially Feasible
The third test in highest and best use analysis: a use must generate sufficient income or value to justify the cost of development, including land cost, construction costs, and a market rate of return.
Financial feasibility analysis determines which legally permissible and physically possible uses would produce a positive return on investment. The appraiser estimates the potential income or value from each candidate use, subtracts development costs (construction, financing, permits, professional fees), and determines whether the residual land value is positive. Uses that don't generate enough value to cover costs are not financially feasible. Market conditions heavily influence feasibility — a use that is feasible in a strong market may not be in a weak one.
Related Terms
Highest and Best Use
HBUThe reasonably probable use of a property that results in the highest value, considering uses that are legally permissible, physically possible, financially feasible, and maximally productive..
Legally Permissible
The first test in highest and best use analysis: a use must be allowed under current zoning, building codes, environmental regulations, deed restrictions, and other legal constraints to be considered..
Physically Possible
The second test in highest and best use analysis: a use must be physically achievable given the property's size, shape, topography, soil conditions, access, and available utilities..
Maximally Productive
The fourth and final test in highest and best use analysis: among all financially feasible uses, the maximally productive use is the one that produces the highest residual land value (or highest property value for improved properties)..
More in Highest & Best Use
View allInterim Use
A temporary use of a property that is expected to change in the foreseeable future as market conditions evolve or when the property becomes ripe for development to a higher use..
Conforming Use
A property use that complies with current zoning regulations and is consistent with the predominant land use pattern in the neighborhood.
Feasibility Analysis
The study of whether a proposed project's value upon completion exceeds its total cost, including profit.