How is the residual method of valuation calculated?

Video Transcript

The residual method of valuation is used to calculate the current market value of a property or site with live planning permission or development potential. It starts by estimating the gross development value, or GDV, which is the end value once the scheme is complete. It then works backwards by deducting the cost of developing the site, including items such as construction costs, finance, developer’s profit and any other costs associated with completing the scheme. Once these costs are deducted, what we are left with is the residual value or market value of the site today, with the benefit of that planning consent. It’s worth noting that this is the recognised method of valuation for development sites, no matter whether a lender is simply funding the purchase of a site or actually funding the development through to completion.