What is the purpose of the RICS Valuation – Global Standards 2022 (the Red Book)?
provides the mandatory professional framework for RICS valuers, ensuring that valuations are consistent, transparent, and aligned with international standards, thereby maintaining confidence in valuation advice globally
What is the status of the Red Book within professional valuation practice?
The Red Book functions as the authoritative and mandatory professional standard for RICS valuers and a globally recognised benchmark for valuation practice
What is the RICS Valuation of Development Property guidance note (2019), and when is it used?
provides best-practice guidance for valuing development land or properties with development potential, typically used when the value depends on future development rather than the existing use.
What is the residual valuation method?
value of development land or a redevelopment opportunity by calculating what remains (“the residual”) after deducting all development costs and developer profit from the expected completed value
5 methods of valuation
- Comparable - determines value by comparing the subject property with recently sold or let similar properties in the same market.
- Investment - income-generating potential.
- residual method - is used to value development land or redevelopment opportunities
- profit method values property based on the profit generated by the business operating from the property
- cost method estimates value based on the cost of replacing the property minus depreciation, plus the value of the land.
In what circumstances would each of the five valuation methods typically be applied?
- Comparable - Residential
- Investment - Commercial e.g. offices
- Residual - Land
- Profit - Hotels
- Cost - specialist such as church
What is the comparable method of valuation, and what type of property is it most commonly used for?
comparable method determines value by comparing the subject property with recently sold or let similar properties in the same market.
Key features:
- Based on actual market evidence
- Adjustments are made for differences such as location, size, condition, and lease terms.
Typical uses:
Residential property
Vacant land
Standard commercial properties with good market evidence.
What is the residual method of valuation, and when is it most appropriate to use this method?
The residual method is used to value development land or redevelopment opportunities.
Key principle:
Land value = Gross Development Value – Development Costs – Developer’s Profit
Typical uses:
Development sites
Land with planning permission
Redevelopment projects.
How can the residual method be used alongside a development appraisal when assessing land value?
A development appraisal provides the detailed financial analysis of a proposed scheme, while the residual method extracts the land value from that appraisal by subtracting costs and profit from the expected completed value.
What key inputs are required when undertaking a residual valuation?
GDV
Development Costs
Finance cost
Developers profit
Developer programme
What factors influence property values, and how can changes in these factors affect a valuation outcome?
Location, size, market demand , property features, planning
Why was the residual method of valuation appropriate for assessing the Enfield Town Centre development opportunity?
Because it was a development opportunity
How did you determine whether the seller’s guided land value could be achieved through your valuation?
The seller’s guided land value was assessed by preparing a development appraisal and applying the residual valuation method, then comparing the resulting residual land value with the guide price to determine whether it was financially viable for a developer to pay that amount.
Development Appraisal -
-The Gross Development Value (GDV) using comparable sales or rental evidence
-Construction and development costs, including professional fees and contingencies
-Finance costs based on the development programme
-Marketing and sales costs
-A reasonable developer’s profit reflecting market expectations
- Residual Land Value = GDV – Total Development Costs – Developer’s Profit (THE PRICE WE COULD PAY)
- Comparing the residual value to the seller’s guide price
- Sensitivity testing - CHANGING THE INCOME LEVELS
How did you obtain and verify build cost information, and why was benchmarking against comparable schemes important?
From the in house commercial department. Benchmarking was important to work out realistic costs to ensure the job is being over or under priced based on real life examples.
What factors did you consider when selecting the appropriate build cost rate for this development?
Location, unit numbers, height of blocks, basement, duration of build, design, abnormal and site conditions, contamination survey , inflation and contingency
How did you ensure that abnormal costs, professional fees, CIL and Section 106 obligations were accurately reflected in the valuation?
CIL based off site GIA.
Reviewed local authority CIL schedules and the site’s chargeable rate.
Calculated the total CIL liability based on floor area or use.
Included the CIL cost as a separate item in the development appraisal so that it reduced the residual land value.
s106 - compared local schemes to see their contributions
Adnormal costs - Reviewed site investigation reports and surveys to identify potential abnormal items.
Obtained estimates from quantity surveyors or contractors.
Professional fees - planning costs - used recent schemes
How did you undertake market research to determine appropriate private sale values for the proposed units?
Review of comparable evidence
Identified recently sold and marketed units in the local area or similar locations.
Considered units of similar size, specification, and tenure.
Adjusted values to account for differences in floor level, orientation, finish, or amenities
Consultation with local agents and developers
Engaged with estate agents, developers, and marketing agents active in the area.
Obtained professional opinions on achievable sale prices and buyer demand.
This qualitative evidence helped validate the quantitative data from sales comparables.
software such as Land in sight to track sold prices
Internal sales team
Why did you consult multiple data sources, including Rightmove, local agents and your internal sales team, when assessing comparable evidence?
insured the comparable evidence was accurate, comprehensive, and reflective of real achievable market values, providing a robust foundation for the Gross Development Value (GDV) in the residual appraisal.
How did you apply the principles of RICS Comparable Evidence in Real Estate Valuation (2019) to ensure your valuation was robust
By identifying relevant comparables, verifying evidence, making justified adjustments, considering market context, and reconciling data, I ensured the valuation was robust, credible, and in accordance with RICS guidance, providing a defensible basis for the Gross Development Value (GDV) used in the residual appraisal.
- Identifying relevant comparable - similar new builds, size, tenure, location
- Verifying evidence quality-
Checked the accuracy and reliability of each comparable, using multiple sources: Rightmove, local agents, and internal sales data.
Distinguished between asking prices and achieved sale prices, giving more weight to completed transactions.
- Adjusting for differences
Made adjustments to comparables for factors like:
Unit size and layout
Floor level, orientation, and view
Specification and finish
Amenities (parking, balconies, communal areas)
- Considering market context
Analysed supply and demand, absorption rates, and local economic conditions.
- Reconciling and concluding a value
Reviewed all adjusted comparables and determined a range of likely values.
Applied professional judgment to reconcile differences, producing a reasoned, transparent estimate for each proposed unit.
How did you test the sensitivity of the valuation to changes in key assumptions such as sales values or build costs?
Ran different models to determine if a greater margin was required how much the build cost and sales values needed to be reduced by..
How did you present your valuation advice to your client to support their decision to progress to a formal bid?
The valuation advice was presented transparently, supported by evidence and sensitivity analysis, clearly linking the residual land value to the seller’s guided price. This enabled the client to understand the risks, assess viability, and make an informed decision on progressing to a formal bid.
What is RICS terms of engagement?
is a key component in professional valuation practice, required under the RICS Valuation – Global Standards 2022 (Red Book). It is the formal agreement between the valuer and the client that sets out the scope, purpose, and basis of a valuation assignment.
What is an assumption?
Something that is reasonable to accept as fact without specific investigation or verification.
What is a special assumption?
An assumption that either assumes facts that differ from the actual facts existing at the valuation date or that would not be made by a typical market participant in a transaction on the valuation date.
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