The first thing in being able to value any site is figuring out what you can get on the site.
For this deal, we will work back from the Class Q permitted development rules, which allow for the conversion of agricultural barns into residential units. The rules allow for creating a maximum of 10 units with a maximum cumulative floor space of 1,000 sq m. However, the maximum size of any one unit must not exceed 150m2.
Our site has just over 1,000 m2 of barns on the site, although it is a very compact site, so we have to bear that in mind. For example, we could squeeze 10 units on the site but wouldn’t have any space for gardens.
The strategy of this scheme would be over two stages. First, achieve Class Q approval by getting Class Q permitted development on the site, which is much easier to achieve than outright planning permission.
Once we get approval under Class Q, we will submit a new planning application for a new build scheme based on the parameters achieved on the Class Q approval. This new build proposal will have the benefit of the site having permission in place already, via the Class Q approval, giving us a fallback position, meaning the planners will be much more amenable to the new application.
For the first stage, we will maximise the rules under the permitted development and get the 1,000 m2 of floor area, although rather than 10 units, we will do this over eight dwellings due to the site being too tight to achieve the 10 units.
Converting the existing agricultural barns wouldn’t work for us, so we are working on the presumption that we will achieve the new build scheme, which will follow the rough layout of the barns and deliver a courtyard development of barn-style houses.
The final scheme would be for eight units at 1,000 m2 / 10,760 sq ft, with each unit around 1,794 sq ft. The sales values in this area are £365 – £425 / sq ft. We will pitch at the low end at this stage of proceedings, hoping we can increase it later.
10,760 x £365/sq ft = £3.927m GDV
10,760 x £200 = £2,152 Build Cost
We would expect a 25% margin of the GDV = £982K
Land Value £800k
This is where we have pitched our first offer, £800k.
We have made many assumptions using ballpark figures, such as build cost, in some areas. However, based on our experience and assessing the site, we feel comfortable with this cost assumption because the site has no onerous issues.
This offer to the owner was broken down in a letter, which shared our work on the valuation. The offer was based on the owner giving us an option for 2 years to achieve the planning, thereafter, we will purchase at the agreed sum.
Ideally, we would work as a land promoter for the land owner, simply achieving planning and then taking 20% off the land value when it sells (with planning) as our fee. However, through discussions with the landowner, they advised that this wouldn’t be acceptable to them, as they want a firm offer.
We are looking to make the figures work for us where we believe we can flip on to a builder/developer once the planning permission is granted, who will work off tighter margins than ourselves. We would value this site with planning permission in place at 10,760sq ft x £385/sq ft sales value = ££4.143m x 30% land value = £1.243m.
Land values in our area typically compute to more than 30% of GDV, so our presumption is prudent.
Next week, we will update you on how the offer was received.
If you missed last week’s newsletter, catch up on it by visiting LANDpreneur.co.uk.