Residual Valuation General Flashcards
(10 cards)
When is a Residual Valuation used?
When a property has development potential. A property has development value if the value for the current use is less than for an alternative use.
What is the difference between a Residual Valuation and Development Appraisal?
Residual Valuation = find the value of land.
Development Appraisal = establish the viability
What are the critiques for Residual Valuation method?
Inaccuracy - Inputs in a RV is difficult to get accurate at an early stage because there are so many unknowns.
Sensitivity - The small change in one input could have a big impact on valuation. Difficulty of gathering information.
Manipulation - Perspective of a valuer (optimistic or pessimistic) can drive the result and be used to manipulate the end figure.
Development process timing - It can take years from inception to complete and the timing of cash flows are not adequately reflected.
What should be inspected?
- The shape of the site
- Ground conditions
- Aspect (e.g. south facing)
- Encumbrances like power lines
- Evidence of other interests in the land
- Environmental concerns (endangered species habitat)
- Geotechnical conditions
- Size and height of any existing and neighbouring buildings
- Ability and capacity for infrastructure
- Boundary and boundary treatment
- Previous use
- Ground contours
- Archaeological features
- Rights of way/easements
- Flood risk
What should be inspected from a legal standpoint?
- Planning
- Planning mitigation payments policy
- Restrictive covenants
- Easements
- Tenure
- History of use and ownership
- Statutory protections (historic, endangered species)
Key terms
Gross Development Value
Capital value on completion.
Key terms
Investment method
If the site is commercial, the RV will be the investment method - capitalising the market rent at a market yield.
Key terms
Comparable method
If the site is residential, the comparable method should be used to ascertain the value of the completed dwellings. If the site is mixed use, then a combination of the two can be used.
Key terms
Net Development Value
The gross development value with deducted costs of disposing the development via an agent
What is a sensitivity analysis?
The valuer reruns the residual valuation changing one variable at a time to see what result this has on the outcome.
