Developer wants to buy our house along with both neighbours

steve.flooks

Hi Guys and Girls,

We have been approached by a Developer who is looking to buy our house and the two neighbouring plots. Both plots either side are currently with approved planning and planning application (without the developer). We know that both neighbours are interested and we are currently waiting for the Developer to make us an offer, (this will be an Option to buy).

I would like to know if anyone else on the forum has experience of this situation, from both a developer and seller side. My question is what premium is considered reasonable above the market value of the house? I know there are many factors but I would like to get some idea of the figures seen in the marker already,

lincroft1710

The answer to your question is whatever you (and your neighbours) can negotiate. If the developer is savvy (which he probably is) he may well make a condition that you all 3 sell or no deal. But he may be underhand, buys 2 and either by moving in undesirable tenants or creating nuisance by building works etc, forces number 3 to sell possibly at a lower price than they hoped for.

Do remember that if you try holding out for too high a price, the developer may go elsewhere. You may consider employing a surveyor to represent you or all 3, which obviously will cost. A condition of each sale should be that the developer pays all legal costs. But as moving house can cost £5K or more (fortunately no EA fees) you need to factor this into negotiations

eddddy

The value of your house will be dependent on the value of what the developer plans to build.

e.g. If the developer wants to build a block of 20 flats on your land, it will be worth a lot more than if they just want to build two houses.

An old rule of thumb is that a site is worth 33% of the final value of the development. (e.g. If whatever the developer plans to build will be worth £1.5m on the site of your house, your site is worth about £500k)

If the development needs all 3 houses to make the development viable, you might end up in a bit of a fight with your neighbours about how much each person sells for.

It might be worth getting an opinion from some land agents.

Fuzzyness

to the OP, your post is slightly unclear when you say "Both plots either side are currently with approved planning and planning application (without the developer).". what do you mean by this and do you know what the developer is intending/proposing?

steve.flooks

Fuzzyness wrote: »

to the OP, your post is slightly unclear when you say "Both plots either side are currently with approved planning and planning application (without the developer).". what do you mean by this and do you know what the developer is intending/proposing?

So our neighbour on the right bought and has been refused planning permission, neighbour on the left bought recently and has planning permission. Developer who knows neighbour on the right has asked us and left neighbour if we are interested to sell. They have said that they would look to put smaller development on the plot, maybe a mix of 5,4 and 3 beds, max 6/7 units. We don't know full details of theirs plans so its difficult for us to work out what we could reasonably expect the developer to pay above market value....is 25% to 30% reasonable.....

sparky130a

steve.flooks wrote: »

We don't know full details of theirs plans so its difficult for us to work out what we could reasonably expect the developer to pay above market value....is 25% to 30% reasonable.....

No savvy developer ever overpaid anything....

Fuzzyness

you need to get your head around residual land valuation. link here. https://investmentproperty.co.uk/property-development-resources/residual-method-valuation-land-property-development-appraisals/

essentially a developer will look at your three houses and take a view as to how many houses/plots he can get on there. you've said 6 or 7. they will form a view as to what they can expect to sell these for. they will also have a reasonable idea how much it will cost them to build which will be factored in with profit they want to make along with any associated fees. when you take the costs (build costs, fees, profit) off the projected sales value you get the land value. As there are three houses making up the development agreement will have to be reached as to how land value is split between the three of you. do you all own similar sized houses/gardens?

steve.flooks

Fuzzyness wrote: »

you need to get your head around residual land valuation. link here.
essentially a developer will look at your three houses and take a view as to how many houses/plots he can get on there. you've said 6 or 7. they will form a view as to what they can expect to sell these for. they will also have a reasonable idea how much it will cost them to build which will be factored in with profit they want to make along with any associated fees. when you take the costs (build costs, fees, profit) off the projected sales value you get the land value. As there are three houses making up the development agreement will have to be reached as to how land value is split between the three of you. do you all own similar sized houses/gardens?

Two plots are similar size, one has slightly longer garden, (left side), our house is roughly valued a 1/3 higher than what they paid for theirs, as per the Land Registry. Both plots either side had plans to knock down existing houses before developer got involved, hence the interest in ours. They are only at Outline Planning stage so I don't know what they are proposing so its hard to work back to the land value.

stator

You can either sell at an absolute price or you can ask for a share in the uplift in value of the property, which is either payable when planning permission is granted or when the houses are sold.

3mph

Might help, but a large house I owned equally with a friend was valued as it was at £450K in 2006. We sold it to a developer to build a block or 30 retirement flats for £1.45 million. They made an offer subject to getting planning permission. It went to appeal and they paid for everything, expert witnesses, barrister etc.

Prior to this I had engaged a firm of Chartered Surveyors to market it and I had agreed a fixed sum for a sale at a minimum amount £1.2 million and then a % extra for anything above this £1.2 million fixed, to give them incentive to get the best price they could. Everyone ended up happy with this.

If you do want to do a similar arrangement with your 2 neighbours you might want to take legal advice on how to bind all three of you to a joint (and equal?) deal.

Fuzzyness

steve.flooks wrote: »

Two plots are similar size, one has slightly longer garden, (left side), our house is roughly valued a 1/3 higher than what they paid for theirs, as per the Land Registry. Both plots either side had plans to knock down existing houses before developer got involved, hence the interest in ours. They are only at Outline Planning stage so I don't know what they are proposing so its hard to work back to the land value.

sounds like you need an agent on your side. they will be able to advise about sales prices (per square foot) in the local area and working back from that should be able to come up with a value that you can at least start negotiating with the developer over. I'd echo the other responses about working out how you tie it up legally between the three parties.