A comprehensive and impartial development land valuation is the single most crucial step to take before promoting or negotiating the sale of your land to a developer. If you are considering selling your land to a developer, this step is critical. In contrast to a typical residential or agricultural valuation, a development land valuation needs to take into account the possibilities for planning, the expenses of construction, the profitability of the land, the risk involved, and the expected profit that a developer will require. If you do not have this, you run the risk of undervaluing a site that has true promise or overpricing it to the point where serious purchasers will retreat from the transaction.
Another benefit of having a reliable development land valuation is that it instils confidence in you during negotiations, assists you in making a decision between outright sales, option agreements, or joint ventures, and offers a figure that can be defended in the event that complications involving taxes, probate, or partnerships emerge. It is not just a figure; rather, it is a methodical evaluation of what the land is capable of accomplishing from a practical standpoint in the current market.
What is included in a development land valuation and how it is calculated
When it comes to development land valuation, a price per acre is not the only factor to consider. An evaluation of the market worth of the land is based on evidence and is based on the premise that the site will be developed to its full potential. This evaluation takes into account the planning status, physical constraints, infrastructure, market conditions, as well as the costs and risks associated with delivering a scheme.
Size, form, access, utilities such as water and drainage, topography, pollution risk, flooding, archaeological or ecological limits, and any existing buildings or rights of way are some of the factors that the valuer will normally take into consideration and take into account when valuing the site. Additionally, they will examine the local planning policy, the likelihood of obtaining authorisation for your intended use, and any requirements that may be imposed, such as affordable housing, contributions to Section 106, or the Community Infrastructure Levy.
Importantly, a development land valuation will frequently make use of two methodologies that are complementary to one another. The comparable technique examines recent sales of properties that are comparable to the one being compared, taking into account the planning status, location, and timing of the transactions. Following the deduction of all build expenses, professional fees, finance, marketing, contingencies, and the developer’s profit, the residual method arrives at a residual land value. This approach begins with the gross development value of the completed scheme and continues until the residual land value is reached. Utilising both approaches and bringing them together into a single, well-reasoned assessment of worth is the best practice that can be carried out.
To whom does the responsibility of conducting a development land valuation fall?
There are certain surveyors and estate agents who lack the necessary tools to create a development land valuation that can be relied upon. A person who has specific experience in development appraisals, viability, and the local planning context is required for this particular task. A chartered surveyor who is a member of the Royal Institution of Chartered Surveyors and who routinely does valuations of development property in accordance with the applicable RICS guidance is considered to be the gold standard in the United Kingdom.
You should look for a valuer who can provide evidence of previous experience with properties that are comparable to yours in terms of size and usage, whether they be residential, mixed-use, commercial, or industrial types of properties. It is expected of them that they be able to communicate their assumptions in a straightforward manner and that they are comfortable dealing with planning experts, engineers, and cost specialists when necessary. A solid development land valuation will frequently make reference to sensitivity analysis, which illustrates how the value shifts in response to changes in key variables such as sale prices, build costs, or planning deadlines.
It is not a good idea to rely exclusively on the initial offer made by a developer or a free estimate obtained online. These estimates are not intended to determine the actual market worth of your land; rather, they are designed to protect the margin of profit for the buyer. You are placed on an equal footing from the very beginning when you have a development land valuation that is an impartial and professionally prepared process.
A guide to locating the most suitable professional for your website
Determine what it is that you require first. Are you looking for a quick indicative number to test the market, or are you interested in a thorough written report that is suited for lenders, solicitors, or tax purposes specifically? Your response will determine whether you request a desktop valuation, a drive-by inspection, or a thorough site-based development land valuation with a detailed report. All of these options are available to you.
The next step is to locate surveyors or companies that focus on development land rather than general property. In your search for practitioners, look for those who specifically mention development appraisals, residual valuations, viability work, or experience serving as expert witnesses. It is important to have local knowledge: a more accurate development land valuation will be produced by someone who is familiar with the planning regulations of your council, the normal requirements of Section 106, and the most recent land transactions in your region.
Question prospective valuers about the methodology they use. An experienced specialist will provide an explanation of the procedures that they will use to assess the location, the planning and market research that they will carry out, the methods of valuation that they will employ, and the manner in which they will handle risk and uncertainty. In addition to this, they should be transparent regarding the timeframes, fees, and format of the resulting report. When you are comparing quotations, it is important to emphasise not just the price but also the scope of the task and the relevant experience of the valuer.
There are a number of good starting sites, including professional bodies and planning portals. A great number of chartered surveyors have their areas of speciality listed on the internet, and some of them even keep published case studies of their work in the field of development land valuation. Personal references from solicitors, accountants, or planning experts who frequently represent landowners are another way to find individuals who are considered to be trustworthy specialists.
In what manner might one anticipate the process of valuation?
The procedure normally starts with a brief to confirm the aim of the development land valuation, the foundation of value that is required, and any unique assumptions, such as the award of planning consent for a particular project. This is done after you have hired a professional to perform the process. A site inspection will then be arranged by the valuer in order to evaluate the physical attributes, access, and services, as well as any impediments that may have an impact on the value or deliverability of the property.
Behind the scenes, they will collect similar information from recent land transactions, analyse local planning rules and any developing allocations, and, as necessary, interact with planning or cost specialists to test key assumptions with the intention of determining whether or not they are accurate. It is possible that they will run many scenarios in order to demonstrate how the development land valuation reacts to changes in sale values, build costs, or phasing for sites that have complex viability difficulties.
This final report should include a clear judgement on value, a description of the site and its context, an explanation of the methodologies that were used, a detailed description of the assumptions and risks that were taken into consideration, and a description of the site itself. While it should be written in a style that is understandable to a landowner, solicitor, or lender who is not an expert in the field, it should also be able to withstand scrutiny from the valuation team that is employed by the developer.
In the process of selling to a developer, you should use your development land valuation.
When you have a reliable development land valuation in your possession, you will be able to approach the market from a position of advantageous power. There will be a clear understanding of whether or not an unsolicited offer is feasible, the price range that should be targeted, and the deal structures that could potentially maximise your return. Some landowners use the appraisal to determine the asking price, while others use it as a confidential benchmark to evaluate whether or not they are willing to accept an offer.
The evaluation can also play a role in determining the buyer you choose. It is possible that a site that is suitable for a small infill project will attract different developers than one that is suitable for a complex and high-density development. Your ability to personalise your marketing and negotiate more successfully on pricing, timing, and conditions is enhanced when you have a solid understanding of the underlying value drivers. In certain circumstances, a development land valuation that is well-argued can even cause a developer to change their initial perception of what the site is capable of supporting.
Last but not least, keep in mind that market conditions might shift. Consider whether you require an updated development land valuation in the middle of the process if the sale of your property is expected to take several months. This is especially important if there are significant changes in the planning policy, interest rates, or building prices during the course of the process. Maintaining an up-to-date collection of evidence means that you will continue to be in a strong position to achieve the most favourable conclusion when selling your land to a developer.