The gross development value is the most important figure and assumption which is used in the development appraisal. Minor fluctuations in the gross development value will have the biggest impact on the profitability of your development project and it is, therefore, critical that we spend some time getting this assumption correct.
I say it quite a few times, but your development appraisal is only as good as the quality of the inputs and assumptions you are using. By taking the time to make sure your assumptions are solid, you are taking a big step towards de-risking your development project.
This article is focused on residential gross development value and I personally use 4 sources to make sure I have the correct assumption for the gross development value in my appraisals.
So… lets get stuck in…
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Sold Price Data:
The best and most reliable source of data for the gross development value is the sold price data, specifically the data provided by the Land Registry.
As many of you will know, the Land Registry documents every land transaction and the title documents includes the price for which the specific property or land was purchased for.
The sold price data should be your first source for establishing your gross development value and the area which you should spend most of your time. The great thing being that this can all be done from your office online.
Asking Price Data:
The next source of data for the values in your appraisal is researching what is on the market currently.
This is, of course, not real data as the prices shown here are only asking prices and there is no way to tell whether the price shown is under-valued, over-valued or bang on.
So tread with caution here…
However… be clever with your searches.
If you are planning to build flats in your project, then there is no point searching and analysis data for houses in the area. The comparable data you are using should reflect the design of your project.
The high street agent still plays a large role is residential property development and this starts way before they get their hands on your finished product to sell.
I have approached and spoken to at least 3 local high street estate agents for every single site I have looked at in detail or purchased.
They know the local micro market better than most and they love to talk about the market. So spend some time either phoning or meeting face-to-face to get their opinion of the potential values you can achieve.
They will be more than happy to help and you can get a lot of detail from them. Their end goal is obviously to get a chance to sell your finished development so they will usually always help with values.
Be careful… a local estate agent may not have experience with selling new-build product… they may want to over inflate the values to make them look good. You skill as a developer is to sift through the information and decided what the correct assumption is for the gross development value.
Finally… the specialist property development surveyors.
These guys know development and often know exactly what us developers need. Unlike high street agents, the development agent specialises in property development and will use a variety of sources and experience to provide the data you want.
Sometimes this comes at a cost, but sometimes they will do it for free depending on your relationship with them.
If you are using a development agent to source and buy land through, then their opinions on values is a must, and they should be providing this data as part of their fee.
I personally tend to use development surveyors on larger sites when the gross development values starts getting into 8 figures, but that’s just me.
The 4 sources above a perfect for correctly establishing your gross development value and whats even better is my FREE development appraisal excel tool…
Download that now…
Sources of Gross Development Value – Final Thoughts…
So there you have it…
4 really simple sources to use to make sure your gross development value in your appraisal is as reliable as possible.
It is your job as a property developer to collate, analysis and agree on the inputs into your appraisal. You are the one who ‘owns’ the inputs and it is you who is taking all the risk in the development process.
A skillful and profitable property developer will be able to gather as much information as possible to help with the process, and importantly be able to sift through what is important and what can be ignored.
Just because an estate agent said you can sell your next development for £2m, doesn’t mean you can. Use all the sources available to you and make sure you can fully justify and qualify the inputs you are using.
In the end of the day… as a property developer, you are the person in charge, and if a project fails to make the required profit the its on you…
All the best,
Mike – Your Property Pro