Valuation - Level 2 Residual Method

Question 1

Can you talk me through your residual valuation

Answer 1

• In order to carry out my calculation I firstly calculated the sites gross development value
  o This was done by analysing the market value
  o X ARY (7%)
• Once I had my GDV I then deducted my development cost:
  o Which included:
   Demolition costs
   My build costs (BCIS – build rate adopted was £90 p.sm)
   Professional fees (10%)
   Marketing and agent costs
   Finance costs (7% at the time of valuation, but this has increased to 8-9% - based on BOE rates)
   Contingency - 10%
• I also deducted the developers profit
  o Which was 20% of GDV
• This provided me with the Gross Acquisition Price.
• I then went on to deducted:
  o additional agent and Legal Fees to let the property
  o Along with LBTT
• And this then provided me with the residual land value of £5,573,250
• Finally completed a sensitivity analysis

Question 2

What is a sensitivity analysis?

Answer 2

Used to calculate you’re the variance in your valuation should any of your costs change during the development.

Question 3

When using sensitivity analysis, what components would you flex and what range of spread would you consider?

Answer 3

• Construction Costs
• Timescales
• Minimum wage increases
• Rental prices/Sales prices
• 5 and 10% changes

Question 4

Can you tell me what LBTT stands for and the bands associated with it?

Answer 4

• Land and Buildings Transaction Tax
• The tax bands are:
  o Anything up to £150,000 – 0%
  o £150,001 - £250,000 – 1%
  o Anything above £250,000 – 5%