If you are considering selling a plot of land – or a portion of it – you will naturally want to know how much money you can expect to receive.
Valuing land is not a straightforward science and it will ultimately come down to how much a party is willing to pay for it.
This may vary significantly depending on who you are talking to. For example, an estate agent may give you a ‘market valuation’ – based on the general size and location of the plot and its current state. A developer may reach a different valuation altogether, as they will look at the potential of the plot, what they can build on it and what the potential profit might be.
There is not one set formula for how a developer will value your land as there are several factors that come into play.
In general, however, a developer will reach the sum they are willing to pay for land by calculating the final value of a development and taking away the cost of the build, professional fees, loan interest and profit margin, as explained in more detail below…
Firstly, a developer will need to look at the size, shape and location of a plot to establish what they may be able to build on it. From here, the developer will work out what size of property they are likely to be able to obtain permission from the council for, and how many units they might be able to be built. Depending on the location and demand for certain types of property in the area, the developer will work out how much they may be able to achieve in total sales for the development.
It is often said that land is worth more to a developer when it has planning permission in place. This is because a developer can better calculate what they can build and on plot and the estimated revenue. They also reduce the risk of not being able to secure planning permission at all, or for fewer dwellings than they may have thought.
The second main element to how a developer prices up the value of land is by looking at the cost of construction. This includes not only the costs of labour, materials, demolition, etc, but also takes into account the cost of financing the development.
Using these two calculations, the developer will reach a price range for the land that they are willing to pay. However, the many factors involved in a development project can often lead to unforeseen circumstances, so a developer will always want to leave in a significant margin for error.
A developer is a commercial entity and will always be looking to maximise the profit they can obtain out of a development, which will often involve trying to get a good deal on the land in the first place. Having several interested parties can help to reach a good sale value as the competing parties will need to offer more to secure the deal.
Lea Hough’s Land and Development team have a great deal of experience in helping land owners to sell their land to developers and can advise from the very beginning in order to best position you to achieve a good price. We also know which housing developers may be attracted to which type of sites/locations and we are able to consider the best strategy to market land to developers to achieve the best sale price for our clients. For more information, please get in touch.