Residual ways of valuation is an important valuation tool for any ambitious investor as it aids in quickly pinpointing the worth of a construction site, land, or existing buildings that have the possibilities to be developed or redeveloped.
Property development appraisals
Any developers would be able to identify their cash flow needs if they have thoroughly gone through property development which is well thought.
When a property development lacks steady cash flow it is considered a great downfall. This would mean that there are many things not working out as they should. Lack of property development appraisal can be much more costly and cause many struggles when coming to terms with underfunding and overspending.
Also, it is very important for a property developer to pre-plan their project thoroughly before beginning and through the whole process until the project is finished. This would help in financial control and would curb the risks of financial losses.
A smart developer would first identify if they can afford to pay for the project they intend to do like develop the ping site or land then he or she would make a budget and determine the project expenditure. It is very important for a developer to know a realistic value of a project in order to determine any other expenditures and the approximate amount of cash they would spend. In order to determine this, the following formula can be used;
Land/property = Gross development value – (construction +fees +profit)
This would be the bargaining price because the sellers’ price is unlikely to be the same, good skills of negotiation should be in order.
Components of the residual method of valuation calculation
Gross development value
This is one of the important parts of the property valuation equation which most experienced property developers concentrate on starting from the beginning. The GDV shows the final amount of a finished project and how it can be projected to interested persons for sale.
Building costs and fees
Building costs features comprising costs related to the site preparation and construction of the property. The fees essentials show things such as payments to professionals involved in the project, solicitors, planners, architects, engineers, and agents. Planning consents, building regulation consents can be included.
Property developer’s profit
The main purpose of the project is to make a profit. If a project cannot give the developer profit, then it is irrelevant. This is why it is important to consider the figures at the starting point because the whole project depends on them.
Securing property development and property finance solution
The residual method of valuation is a prudent approach for any developer and is a highly recommended method to any new developer thinking of a new venture as it is a great way of establishing accurate figures for many aspects of the project.
It is an important component when a developer is looking to secure their finance as it gives a clear, economically sound, and well thought out approach.