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Development appraisal: How to maximise your project’s profit

1st May 2020

At Rory Mack Associates, we offer a long list of professional services for property developers and investors looking to maximise the profits of their commercial, residential and industrial projects. One such service is development appraisal, and as time-served property specialists, your project (and its potential and profit) is in the best possible hands. 

We understand just how challenging, time consuming and demanding things can get when purchasing a site for development. Using our development appraisal service, you can gain support and guidance from our experts to ensure you pay the right price for a new development and successfully assess project profitability and site value in the process. 

In this blog post, we explain how our development appraisal service really works and, more importantly, how it could help you realise the true profitability of a project and potential of a site.

An introduction to the development appraisal

Requesting a development appraisal from a specialist like ourselves is all a part of due diligence. Known in the industry as the ‘residual method of valuation’, a development appraisal offers a succinct explanation of the land or property’s value, as well as an insight into the costs associated with the development of the site. 

How development appraisals work

To come to an accurate conclusion about the value of your project, the gross development value (or GDV) is calculated, and expenditure is determined and then deducted. The resulting figure is the land or property value. 

The gross development value is the end value of the completed project. This figure does not take into account the cost of developing the site. Depending on the type of site or development, the GDV may also detail the end revenue of the finished project. This includes revenue that can be earned from property sale(s), property rental, ground rent and car parking etc. The GDV is determined by the sourcing of comparable data, with information from HM Land Registry, local sales agents and up-to-date market reviews proving invaluable.

Once the gross development value is devised, key costs - such as professional fees; surveyor, site preparation and build costs; developer’s contingency; sales, marketing and legals; developers’ profit; property holding and void costs; and other outlays - are detailed. 

If you are utilising finance or another lending source to fund the project, the cost of said finance is considered during the development appraisal also. In addition to this, costs associated with the fulfilment of statutory requirements (i.e. securing planning permissions, CIL, affordable housing, building control and party wall agreements) are included. Once all costs have been gathered, these are deducted from the GDV to reveal that all-important land or property value.

The benefits of obtaining an appraisal

Being as prepared as possible, particularly when it comes to the development’s financial viability, is integral to ensuring a project’s success and profitability. 

A development appraisal gives you all the figures (including the gross development value, development costs and expected return) so you can go into negotiations with as much information as possible and your eyes wide open. Thanks to the figures provided by a development appraisal, you will have a clear idea of how much you can offer and how much you can increase this offer by at an early stage. This means you can work to maximise a project’s potential profits from the outset.

Choose Rory Mack for your appraisal

Using an experienced and professional development appraisal specialist is a must. The development appraisal and resulting offer is after all only as good as the accuracy of the inputs. 

By working with us, you can not only find sites that you want to purchase but discover their potential and adjust your offer accordingly. Our four stage land residual method ensures a precise development appraisal every time. Our experience and expertise as Chartered Surveyors and RICS Registered Valuers means we are perfectly prepared and positioned to provide professional development appraisals to clients with varying requirements and budgets.

Find out more about our development appraisal service or contact us directly on 01782 715725 or enquiries@rorymack.co.uk to discuss your project.