Highest and Best Use

Highest and Best Use is an appraisal concept that identifies the legally permitted, physically possible, financially feasible, and maximally productive use of a property that produces its highest value. In British Columbia, appraisers apply this standard in accordance with the Canadian Uniform Standards of Professional Appraisal Practice (CUSPAP) and it directly influences the market value conclusion in an appraisal report. For example, a single-family home on a lot zoned for multi-family use may be appraised at its value as a development site rather than as a residence.

Zoning bylaws enacted by BC municipalities under the Local Government Act determine what uses are legally permitted on a parcel, which is the first and foundational test in any Highest and Best Use analysis. An appraiser must confirm the current zoning designation and any applicable overlay or development permit area conditions before concluding what uses qualify as legally permissible. If a property is zoned for duplex use but currently contains a single-family bungalow, the Highest and Best Use may be identified as a duplex site, and the appraised value will reflect that potential.

Generally, no — land within the Agricultural Land Reserve is subject to stringent use restrictions under the Agricultural Land Commission Act (SBC 2002, c. 36), which limits non-farm uses and subdivision regardless of adjacent market conditions. An appraiser must treat ALR designation as a binding legal constraint, meaning the legally permissible use is restricted to farm use or uses approved by the Agricultural Land Commission (ALC), and the Highest and Best Use analysis must reflect those limitations. Owners seeking to remove land from the ALR or apply for non-farm use must apply directly to the ALC, and approval is not guaranteed.

The Property Transfer Tax (PTT) under BC's Property Transfer Tax Act is calculated on the property's fair market value at the time of transfer, which appraisers determine using the Highest and Best Use principle — meaning a teardown property with development potential may attract PTT based on that higher site value rather than the value of the existing structure alone. PTT is levied at 1% on the first $200,000, 2% on the portion from $200,001 to $2,000,000, 3% on the portion from $2,000,001 to $3,000,000, and an additional 2% on any residential value exceeding $3,000,000. Buyers of development sites should be aware that exemptions such as the First-Time Home Buyer exemption or Newly Built Home exemption are unlikely to apply to properties valued and purchased primarily for their redevelopment potential.

Under the Real Estate Services Act (RESA) and the rules established by the BC Financial Services Authority (BCFSA), licensees owe a duty of good faith and disclosure to the clients they represent, which includes disclosing material information known to them about a property. If a licensee is aware that a property has significant redevelopment potential — such as assembly value or zoning that permits a higher-density use — that information could be considered material and should be disclosed to the client. Licensees acting as buyer's agents are particularly expected to identify and communicate such value-relevant factors as part of their agency duties.

A strata lot is subject to the governance framework of the Strata Property Act (SBC 1998, c. 43), which means that any change in use — such as converting a residential strata lot to a short-term rental or commercial use — must comply with the strata corporation's bylaws as well as applicable municipal zoning. While an individual strata lot may theoretically have a higher-value use, the legal constraints imposed by strata bylaws and the Strata Property Act significantly restrict a single owner's ability to unilaterally pursue that use. Dissolution of an entire strata corporation, which would allow redevelopment of the site, requires a special resolution and must follow the winding-up procedure under the Strata Property Act.

Appraisers in BC may consider the probability of a rezoning when determining Highest and Best Use, but only if market evidence demonstrates that buyers are paying a premium for that rezoning potential and approval is reasonably probable — not merely speculative. A use premised on a rezoning that has not been approved and has no clear likelihood of approval would generally not satisfy the 'legally permissible' prong of the Highest and Best Use test at the time of appraisal. The degree to which speculative rezoning value is incorporated is a matter of appraiser judgment guided by CUSPAP and supported by comparable sales evidence in the local BC market.

When a property forms part of a deceased person's estate administered under the Wills, Estates and Succession Act (WESA), the executor or personal representative typically needs a market value appraisal of each real property asset to properly administer and distribute the estate. That appraisal must reflect the property's Highest and Best Use, meaning a development site would be valued at its redevelopment potential rather than simply the value of the existing improvements. Using an artificially low value that ignores Highest and Best Use could expose the personal representative to liability for mismanaging estate assets.

In British Columbia, foreclosure is a judicial process governed by the BC Supreme Court Civil Rules and the Law and Equity Act — there is no power-of-sale remedy as exists in some other Canadian provinces. During foreclosure proceedings, the court typically orders an appraisal of the subject property, and that appraisal must reflect the property's market value based on its Highest and Best Use, ensuring the lender and other interested parties receive an accurate value benchmark. The court uses this appraised value when setting the upset price or evaluating whether to approve a sale, making an accurate Highest and Best Use determination particularly consequential in these proceedings.

When listing a property whose Highest and Best Use differs materially from its current use — such as a house on a lot with assembly or rezoning potential — a BC licensee operating under RESA and subject to BCFSA oversight must take care to market the property in a manner that accurately reflects its value drivers and does not mislead potential buyers. The listing licensee's duties to the seller include advising on pricing strategy informed by the property's development potential, which directly relates to its Highest and Best Use. Misrepresenting or omitting material information about a property's development potential could constitute a breach of the licensee's professional obligations under RESA and the BCFSA rules.