What is the difference between a development appraisal and a residual valuation
Development appraisals – Establish the viability/profitability of the proposed development using a client’s inputs
Residual valuation – establish the market value of a site using market inputs
What is the purpose of a development appraisal
To assess feasibility and to aid key decision making
What is the methodology for calculating residual site value
Gross development value - less development costs =
equals gross site value
Gross site value – purchasers costs = residual site value
What cost would you allow for as part of the total
development cost
- Site preparation
- Planning costs
- Building costs
- Professional fees
- Finance costs
What will be included in your estimate for site preparation costs and how would you estimate them
- Demolition, Remediation works, site clearance, levelling and fencing.
- Obtain a contractors estimate for this works
What would be included in the estimate for planning costs
- Section one 106 payments
- CIL payments
- Required percentage of affordable housing for new residential development
- 278?
How do you estimate the build costs?
- Client information
- BCIS
- Quantity surveyor estimate/building surveyor estimate
What basis are the costs in BCIS usually expressed?
- Usually based on GIA
What does BCIS include?
- XXX
What would be included in your estimate for professional
fees and how would you estimate them?
- Typically 8 to 10% of the construction cost
- From conversations with building surveys project managers and architects…
What would you include in your estimate of marketing cost
and fees?
Sale (1-2% of GDV)
Letting (10 -15% of rent)
How do you estimate the interest rate?
- The rate at which the client can borrow money
- The Bank of England base rate plus a premium
- UK Valuation Best Practice - General Interest Rate Overview 7.15%
Explain the concept of the S-curve?
It assumes that total construction costs plus fees Paid over half the time period
Reflects when monies tend to be drawn down
How do you verify the output of a development appraisal?
Crosscheck site value with comparable site sales if possible
What is a typical loan to value LTV ratio?
60% on GDV
What are the typical components of the capital stack for development financing
- Senior debt
- Mezzanine finance
- Equity
What is overage?
Many forms - an agreement, in addition to the purchase price, that the buyer will pay more when and if the land value increase
What is the profit erosion period
- The length of time it takes for the development profit to be completely eroded
What is included within Valuation of Development property
2019 (Guidance Note)
- When valuing development avoid reliance on a single approach.
- In a basic residual valuation, finance is assumed at 100 per cent of both land and building costs
What is sensitivity analysis?
xxx
What variables would you typically conduct a sensitivity
analysis on?
- GDV
- Build cost
What Guidelines did the RICS release on valuing development
property
- RICS valuation development property 2019
- Best practice avoid reliance on a single approach
Finance without Argus?
- Trying to emulate the s curve
- Land (100%)
- Professional fees (75%)
- Construction Costs (50%)
What are first homes?
- Homes at a discount of 30% compared to the market price
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Valuation58
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Client Care7
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Communication and Negotiation6
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Health and safety14
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Accounting principles and procedures8
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Conflict avoidance, management and dispute resolution procedures5
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Data management11
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Diversity, inclusion and teamworking8
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Inclusive environments4
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Sustainability14
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Planning43
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Case Study Questions!42
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Development Appraisal31
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Purchase and sale12
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Measurement17
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Level 2 and 317
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Ethics44
