How do you value land for development??

Jennex

Hi all, some dumb questions to ask here, please help. I'm joint beneficiary of a piece of land with some old building bits on it (foundations, walls, partial roof). Planning permission had been granted a long time ago for a little detached house there - probably some 15-20 years ago at least. The land is about 2-3 acres and is in a nice greenbelt area with high rated schools nearby.

I'm probably going to sell my share to the other beneficiary. My question is how to work out a justifiable price. We're executors too, so a RICS survey was done of the old building work for probate. I think this was correct, but since then there's been a few developments, say a private property buyer has offered a much higher price for the whole lot than the RICS survey suggested.

I wonder if this is because the RICS survey focused on how much it would cost to finish that old building (a lot), and then made estimations based on similar sized houses in the region. Now, would a property developer actually value the land more? After all, the original design aimed to preserve most of the outside space, when it could have easily been for a much bigger house, or the land could be split into smaller plots. But maybe that was because getting planning permission in greenbelt areas is so tough? And how would I even find out what a developer would realistically pay?

user1977

Well, what was the remit of the survey? If it was for probate I'd expect it to simply be the market value of the plot - which in practice would be what developers would pay for it. Have you discussed the apparent discrepancy with the surveyor? You can always get a second opinion.

Jennex

user1977 said:

Well, what was the remit of the survey? If it was for probate I'd expect it to simply be the market value of the plot - which in practice would be what developers would pay for it. Have you discussed the apparent discrepancy with the surveyor? You can always get a second opinion.

Well, I don't know if this was right for these purposes... But it was a level 3 survey that praised the area, assessed what the clear-up of the land would cost (it's very overgrown and has quite a bit of building rubble left over), and assessed the end market value of the house IF it were finished (about 900K!). Then from this was deducted the clear-up costs, landscaping, and estimated cost to finish building according to the original design to get the residual value (230K). I thought this made sense till I started wondering whether I'm underselling my share. I don't 100% know if the other beneficiary actually intends to finish the original design, or has other plans.

Can I tell a surveyor to estimate how much a developer would pay to knock it all down and build more expensive houses there? Even as I write that it sounds ridiculous, like I'm asking them to pick figures out of the air...

Hoenir

Price should be based on the probate value. Any other value is purely speculative. 

user1977

Jennex said:

user1977 said:

Well, what was the remit of the survey? If it was for probate I'd expect it to simply be the market value of the plot - which in practice would be what developers would pay for it. Have you discussed the apparent discrepancy with the surveyor? You can always get a second opinion.

Can I tell a surveyor to estimate how much a developer would pay to knock it all down and build more expensive houses there? Even as I write that it sounds ridiculous, like I'm asking them to pick figures out of the air...

They should be taking into account what potential the site has, it gets a bit tricky where there's a good chance of a more lucrative development but only if you're prepared to put together a planning application and wait to see whether it goes through - if you don't all want to hang around then the surveyor does have to stick their finger in the air and add some "hope" value to take account of the likelihood of planning being granted.

Ultimately it's whatever you and the other party can agree to.

Tucosalamanca

When the plot is sold later on, you will be liable to CGT on the difference between probate valuation and the final sale price.

If the estate has unused IHT allowances, it would be prudent to value the plot as high as you reasonably can.

If the estate has an inheritance tax liability, it would be prudent to value the property as low as you reasonably can.

Basically, it's preferable to pay CGT rather than IHT at 40%

With property, there's generally a number of opinions. as long as you could make a valid case and justify the valuation stated, there's unlikely to be any problems.

A good surveyor would listen to your needs and report accordingly.

Hermann

Consider selling your share with an overage clause.
I.E. if the site subsequently sells for substantially more,  due to planning permission being granted for instance, then a further payment is due to you, usually a percentage of increased value.

Jennex

Hoenir said:

Price should be based on the probate value. Any other value is purely speculative. 

Ah, perhaps I'm barking up the wrong tree. One overeager private buyer isn't much against an official RICS survey I suppose. I don't know why there's such a discrepancy in the prices but when it came down to it, the RICS was used for probate. The buyer says they'll put their offer in writing but what would that really prove.

If anyone's still reading - would it be a good idea to get a second survey done, emphasizing it's for sale now, or is a second survey a waste of money? The first one is about 1.5 years old now. Other executor thought we should just use probate value then add on average house price rise in the county since then, which had made sense to me.

Jennex

Hermann said:

Consider selling your share with an overage clause.
I.E. if the site subsequently sells for substantially more,  due to planning permission being granted for instance, then a further payment is due to you, usually a percentage of increased value.

Another very useful term to learn! Thanks. I do worry the other executor / beneficiary might just decide to sell off the land after developing something good on it. I would be willing to share the investment of time and money to build something better on it, but they've said no to that.

Hoenir

Jennex said:

Hoenir said:

Price should be based on the probate value. Any other value is purely speculative. 

Ah, perhaps I'm barking up the wrong tree. One overeager private buyer isn't much against an official RICS survey I suppose. I don't know why there's such a discrepancy in the prices but when it came down to it, the RICS was used for probate. The buyer says they'll put their offer in writing but what would that really prove.

People with money who want something badly enough will make offers that are hard to resist. 

Nebulous2

I'd want to test the market, just in case there was a buyer out there who had, or thought they had, a better angle on how to utilise the site. 

You could always sell your half to the other beneficiary at a modest discount to half the best offer. 

A caveat to this is that I'm about as far from a property expert as you will find, but I've known several people sell unusual properties, through private approaches,  and then bitterly regret it when they see the outcome.