Valuation and Financing Practice Question

Question

An investor is comparing two properties involving highest and best use. The parties need a practical answer before moving forward. Which answer best applies the rule? (Item 42)

Answer choices

  1. A. It applies only to commercial property and never to residential transactions.
  2. B. Recognize the legally permissible, physically possible, financially feasible, maximally productive use.
  3. C. It is controlled only by local custom rather than by law, contract, or professional duty.
  4. D. It is valid only when the buyer pays cash and no lender is involved.

Correct Answer

B. Recognize the legally permissible, physically possible, financially feasible, maximally productive use.

Explanation

The correct answer is B because highest and best use requires candidates to recognize the legally permissible, physically possible, financially feasible, maximally productive use. The other options overstate the effect of custom, oral agreement, escrow, or independent salesperson action and do not reflect safe California exam practice.

Question details

  • Difficulty: easy
  • Domain: Valuation and Financing
  • Objective: highest and best use

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