Residual Method Flashcards
What is the residual method?
Based on completed gross development value minus development costs and developer’s return to find residual value.
When would you use the residual method?
Used when there is no comparable sales evidence or when comparables deviate greatly from the actual situation.
How would you do a residual valuation?
Three steps: establish GDV, assess development costs, subtract costs to find residual value.
How would you arrive at the GDV?
Use comparables to establish sales/rental values, multiplied by number of properties to get GDV.
How would you decide what could be developed?
Consider local area, neighboring properties, and local planning policies.
What is the typical amount for developers profit?
Typically 15-20% of GDV, more often used for residential, higher due to market risks.
When might the developers profit be lower than normal?
When the scheme is small or includes a high percentage of affordable housing.
Who would you consult re: building costs?
Consult the BCIS guide or seek advice from a building surveyor.
How much would you deduct for fees?
10-15% plus VAT of total construction costs for consultants, lower for large projects.
How much would you deduct for purchasers costs?
1% for agent fees, 0.5% for legal fees, 3% for stamp duty.
How is the finance calculated on the residual method?
Calculated using borrowing costs for land and construction, with land finance for half the period.
What is S curve finance?
A finance model distributing costs across the project duration, peaking mid-project.
What is the difference between the residual method and a development appraisal?
Residual finds the site value, development appraisal assesses viability based on factors like profit and housing contributions.
What is the most common purpose of a residual valuation?
To find market value of a site based on market inputs.
What date are the inputs taken at?
The date of the valuation.
