A house is worth more if the lot is vacant. This is an example of which principle?

The principle reflected in the idea that a house is worth more if the lot is vacant is known as the highest and best use. This principle asserts that the value of a property is maximized when it is used in a way that yields the highest return on investment. In this scenario, the vacant lot's potential for development or other uses can enhance the overall value of the property, as it offers opportunities for new or different constructions that may be more desirable to buyers or investors than a house already built on it.

Understanding the highest and best use is crucial in real estate valuation because it emphasizes that the value of a property is not static; rather, it can change based on its potential use. The correct application of this concept helps in making informed decisions regarding investment, development, and the marketability of real estate.