CASE STUDY

Question 1

Why was a Red Book valuation specifically required here?

Answer 1

Red Book valuations are required in scenarios where accuracy, regulatory compliance, and legal certainty are paramount.

They provide a level of rigor and assurance. In this case the client wanted to use the valuation as evidence to acquire the site.

Question 1

How did you establish your client’s objectives and priorities for your instruction at the outset?

Answer 1

Prior engagement through phone calls and email to understand the objectives. These were set out in our fee proposal and terms of engagement.

Question 2

Tell me about the RICS guidance you referred to in this instruction?

Answer 2

RICS Valuations - Global Standards 2022

Valuation of Development Property 2019

Question 3

Did you want to take a in person site visit and what would be the particular value of this?

Answer 3

An in person site visit always has a particular value. I would gain direct observation, however considering the context of the site and purpose of the valuation, it becomes less important.

Question 4

When would an existing use value be the appropriate approach?

Answer 4

This would be more applicable if there was an existing tenant in the unit.

Also if there was no planning consent.

Question 5

Tell me about your research on the letting history and the conclusions drawn from this.

Answer 5

The building had been vacant for 7 year, I had found evidence of the site previously being marketed for an industrial use but it was never let. From this I concluded that there is no demand for an industrial use in this location.

Question 6

Would there be any restrictions on the consent which might impact value?

Answer 6

Planning condition to require the passivhaus build, having an effect to both cost and values. The planning limited the number of units to 5.

Question 7

Did you consider planning policy relating to loss of industrial floor space or employment space?

Answer 7

The site was within an area in which residential was an allocated and acceptable use.

Question 8

Explain the valuation approach felt was justified in this case

Answer 8

It felt appropriate given the nature of the asset. The industrial building was vacant with no demand.

The purpose and intended use of my client was to implement the planning permission for residential development.

Question 9

Whether any abnormals and how did you account for these?

How did you account for contamination costs?

Answer 9

it had been identified through the client and contractor that some site remediation would be required. An amount for remediation was allowed for within the cost plan. Our T&E stated that we had not examined the detail of this.

Question 10

What impact did the Passivhaus requirement have if any on your advice? Did you account for this in your comparable analysis?

Answer 10

The Passivhaus requirement had an impact on the value of the properties. I had to make an adjustment to value from my comparable evidence to allow for a premium. I considered published research to establish a premium of around 5-6%

Question 11

Why do you described the development as ‘community led’?

Answer 11

The company is member led and focuses on local projects in Greater Manchester. The company is not for profit and looks to undertake pilot projects.

Question 12

What was your process for reporting to the client and were they happy with the outcome?

Answer 12

My report is reviewed and signed off internally by a director who is a registered valuer. We then issue the report to the client in draft form for comments.

Question 13

Did you report include a development appraisal or RLV? Explain the difference between the two.

Answer 13

The report included a RLV as the valuation was to understand the land value.

Development appraisals are set up to establish the profit of a scheme.

Question 14

What would you do differently next time?

Answer 14

I would insist on a site visit, and check my comparable by consulting with local agents for any transactions I may have missed.

I would have taken additional steps to verify that the building had been properly marketed for industrial.

Question 15

How did you act ethically?

Answer 15

During this valuation I acted ethically in that this was an objective valuation of the land in question, I abided by the RICS standards and provided a good quality service.

Question 16

What were your key achievements?

Answer 16

I produced a valuation of a development land and completed, providing good client service along the way.

Question 17

How did establish the profit of the initial appraisal? (17.5% on GDV)

Answer 17

I understood from my director, who had worked on similar schemes of this nature, size and scale that an acceptable return is between 15% and 20%

We applied a Profit margin of 17.5% on GDV. Anticipated that this may be lower than the typical 20% a developer may expect as the site benefits from planning consent.

Question 18

Where did the profit amount come from in the ‘worth’ appraisal? (6.37% on cost)

why then not on GDV?

why such a specific number?

Answer 18

The amount profit was given to use as a single figure, the client requested that this be shown as profit on cost.

This was the the return basis the client wanted to show in the business internally.

Question 19

How did you know the residential value was of a higher alternative use?

Answer 19

While I couldn’t be 100% certain of the residential development would reveal to be the higher value use at the outset,

My market research indicated there was a high demand, this was due an overall increase in prices seen through HPI and Rightmove stats.

There was also as a lack of demand for industrial properties, evidenced by the site’s seven-year vacancy.

These factors gave me confidence in using the site’s development potential for my valuation.

If I was doing the valuation again, I may have suggested that both options are valued for comparison.

Question 20

How did you verify that the building had been vacant and had proper marketing?

Answer 20

I reviewed data from available property databases to confirm the letting history, including any previous tenant activity and efforts to lease the property. This cross-check confirmed that no successful leases had been secured in the recent past​.

I requested evidence from the client to provide evidence of marketing material for the unit - to which I was sent details of a previous marketing advert.

If I was was doing the valuation again, I would go deeper and contact the agent to understand more details of the marketing history of the unit.

Question 21

Did you take into account the unit prices or just the unit rate? When you apply these?

Answer 21

Both unit price and unit rate are both important to take into account.

With my case study I considered the unit rate more as the comparble I relied on the most were larger units, whereas the subject properties were smaller. I could therefore apply the psm rate.

Question 22

How did you go about checking the ultimate land value?

What were the sites and were they comparable?

Answer 22

Example was another site in Urmston sold

97 Moss Vale Road, Urmston M41 0YP – 0.29 acre freehold with planning permission

to demolish the existing house and erect 3 detached houses sold in March 2023 for
£545,101 (£1.880 million per acre/£181,700 per plot).