Development appraisals: worked examples
There is no prescriptive way in which to value any property: the approach is entirely down to the valuer. These worked examples have been kept relatively simple so that the principles and approaches can be easily understood. However, part of the valuer's skill is to 'stand back and look' at the overall answer rather than rely upon the output of a computer programme which tells them what the answer must be.
This section is written for those with an understanding of the theory and basic concepts of valuation. It therefore, assumes that the reader has a working knowledge of the concepts of discounting and compounding, and is familiar with years purchase (YP).
The examples illustrate some of the different development scenarios a valuer may encounter, such as:
- development sites for single houses, or for a small group of houses;
- land for the development of an industrial unit;
- existing office blocks for conversion to residential;
- a 24-acre development site;
- small mixed-use developments;
- city centre office development sites; and
- a development site with hope value.
Each calculation is clearly set out and the jargon-free commentary highlights points of interest and danger areas:
- Each example includes a description of the property, along with key facts relevant to the valuation. The approach to the valuation is set out, giving the valuer’s decision and the reasons behind it.
- The workings can be followed with a simple financial calculator or by using a spreadsheet.
- Where YP is used, it is worked to three significant figures.
- Each valuation is rounded to the nearest sensible number – usually to the nearest £10,000 for valuations under £1m.
- Figures in cashflows are rounded to the nearest £1 for presentation purposes. However, when totalled, the spreadsheet uses the complete number to the nearest 1p. The result is rounded to the nearest £1 again. This may result in small variations but does not affect the overall answer.
- Purchaser’s costs have been taken to be 1.8% above the relevant rate of Stamp Duty. The rates in effect used are set out in Resources for valuation calculations.