07 Jul The Basics of Land Development Valuation
Existing versus Potential Use
Land with or without buildings might be purchased at prices that reflect the value of the existing use. However, sometimes it will be purchased at prices which reflect potential use, either through refurbishment or redevelopment. Hence, valuers must be aware when advising clients or valuing properties of what the potential alternative uses are for the sites concerned. The potential for alternative uses might affect the Market Value and Investment Value of the asset depending on the costs and benefits involved. This calls for extension of comparison and investment methods to examine the costs and benefits of producing a new scheme.
Valuation of Development Projects
First, the estimation of site value:
- Market Value -what is the site likely to trade for?
- Investment Value -what should our client pay?
Second, the appraisal of viability:
- How much profit could we make and is it enough given the risks?
- These tasks involve solving for different numbers.
- For site value, we need to take a view on profit needed.
- For viability, we need a figure for the price of the land.
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