Kevin Sullivan: A Highest and Best Use Analysis Can Reduce Property Tax Liability

Property owners often assume that an assessor has valued their asset under the correct use, but performing a highest-and-best-use analysis can prepare the owner with data to recognize and dispute an over assessment.

“The Appraisal of Real Estate, 13th Edition” describes four tests which must be performed sequentially: Is the use legally permissible, physically possible, financially feasible, and maximally productive?

In a recent case in Texas, an assessor valuing a historic home operating as a bed and breakfast treated the property as a single-family residence. Tax counsel discovered that the property was zoned for commercial use and legally could not be a single family residence.

Having failed to meet the first test for highest and best use, the assessor incorrectly appraised the property at double its market value. Using the income approach and valuing the property under the correct highest and best use, as a bed and breakfast, lowered the assessment.

In another example, an assessor applied an appropriate land value to a high-rise condo development, but then applied the same per-square-foot value to the land under a nearby, free-standing retail building, inflating the latter property’s value. The principle of consistent use states that the land and improvements on one property must be valued based on the same use.

The assessor’s mistake was failing to apply a consistent use to the property’s land and improvements. While the land value suggested a high-density use, the existing improvements could not support that value. The property was not under an interim use, therefore the highest and best use was a free-standing retail building, requiring a lower land value.

A highest-and-best-use analysis can clearly demonstrate where deficiencies may exist in an assessor’s valuation. Performing this analysis can give you the tools you need to reduce your property tax liability.

 Kevin Sullivan is an Appraiser and Tax Consultant with the Austin, Texas, law firm Popp, Gray & Hutcheson. The firm devotes its practice to the representation of taxpayers in property tax disputes and is the Texas member of the American Property Tax Counsel (APTC), the national affiliation of property tax attorneys. Mr. Sullivan can be reached at