How do you get your Gross Development Value (GDV) for your development deal? We see so many clients that have a little look on ‘rightmove’ and see a two-bed semi for £180,00 or a one-bed flat for £90,000 and then they use that for their GDV. Now this might be a correct value but it is only a snapshot – it does not take into account a range of factors that may hugely affect your GDV.
First and foremost, you need to get a range of prices, Finding a couple of sold prices is not substantial enough to base a GDV on. Ideally, we look for a minimum of 50 sold prices overall. We look for sold prices within the last twelve months which can give us a more realistic value of what the market is doing.
If finding enough sold price comparables is proving to be difficult, open up the search area. Just keep in mind though that even within ½ mile, the areas may be very different and have very different values. Knowing your area is beneficial here!
The next thing we would recommend is to look for sold prices for a range of property types. This will enable you to see what is selling and for what values. Seeing what the demand is could impact on your design scheme and alter your plans. If there is a high demand for two-bed terraced houses in the area which have a higher £ per square metre, why not incorporate this into your development?
Factors that influence each sold price include parking facilities i.e. on-street or driveway; the condition of the property (a recently refurbished property is more likely to get a higher price); and if the property has any outbuildings. We always take note of these within our process.
Once you have collected a range of £ per sqm, you can then look closely at any anomalies. Is there a sold price that has gained a much lower or much higher £ sq m? This could be for a number of reasons – i.e. a quick sale, probate or the quality of the property’s finish. You will then be able to work out an average £ per sqm which will help you calculate a real GDV for your development.
Getting your GDV right is crucial!
In a recent project, a client came to us with a GDV given to him by the vendor, who was a surveyor, and the client agreed with the values. This GDV had been calculated by looking at two properties on the same street. Neither of these houses were in any way similar to the proposed development and had given an inflated GDV. By researching real sold comparables and speaking to agents, we were able to calculate a more realistic GDV. Inevitably, this development worked out to be a non-starter as the original GDV was over-valued by £100,000 per unit. If our client had not come to us and just gone along with his and the vendor’s GDV, it would have been a very costly mistake! Thankfully, with our support, he walked away from the deal and onto the next opportunity.
Sometimes, it is hard to collate sold price comparables for a development especially if there are no properties like it in the locality. This was the case with a rural, new-build development where no new builds went on the market, With this project, we opened up the search to include similar villages in a wider area that had new builds. We were then able to calculate the percentage for the premium paid on the new builds over the second-hand market. We applied this to the second-hand market values found in the development’s locality to give us the values needed.
The numbers don’t lie! Make sure you collect enough evidence of £ per sqm to give you a realistic GDV. An unrealistic GDV could affect your development.
At PD Appraisals, we look at values without an emotional attachment. Clients can easily be guided by their heart and what they think it should be worth or even what they’d like it to be worth. We look at it subjectively.
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