How a developer works out what your land is worth

If you own land with any development potential, sooner or later a developer will put an offer in front of you — and it can feel as though the number has come from nowhere. It hasn't. Behind almost every offer is the same piece of arithmetic, worked backwards from the finished homes. Once you have seen how it's done, offers stop being a mystery, and you are in a far stronger position to judge whether one is fair.

The value is what's left over

The method is called a residual appraisal, and the logic is simple. Work out what the finished scheme is worth. Take off what it costs to build, and all the fees and finance that go with it. Leave room for a profit to reward the risk and effort. Whatever is left is what you can afford to pay for the land. The land value is the residual — the bit left over at the end. That is why two developers can stand in the same field and offer very different numbers: they have made different assumptions about what can be built on it, and what those homes will sell for.

The back-of-the-envelope version

Before anyone spends a penny on architects or surveys, a developer does a rough version of this sum just to see whether a site is worth a closer look. In the trade we cheerfully call it a fag-packet appraisal — the numbers you could scribble on the back of one. Here is how it runs.

Say a site could take around 45,000 square feet of homes to sell. You look at what comparable new homes are fetching nearby — say £650 a square foot — so the finished scheme might sell for roughly £29m. You reckon it will cost about £240 a square foot to build, so around £11m of construction. Take the build off the sales, set aside a margin of about 20% for the risk of doing it, and allow for fees and finance — and what's left, very roughly, is what you could pay for the land. On those figures, that lands somewhere around £13–14m. (Illustrative numbers — every site is different.)

That happens to be a large scheme, but the method is identical whether it is fifty apartments or a single house on a plot. Finished value, minus build cost, minus fees and finance, minus a margin, equals land value. Shrink the numbers and the logic holds exactly the same.

What moves the number

So when an offer lands, the things that really move it are: what can actually be built (which is why planning permission changes everything), what finished homes sell for in your area, and how risky the developer judges the job to be. A site with consent, in a strong location, with no nasty surprises in the ground, supports a far higher number than a plot with everything still to prove.

The practical point for a landowner is this: an offer is never really about your land in isolation — it is about the homes that could stand on it, and the risk of getting there. If you want to test whether an offer is fair, the questions to ask are what scheme it assumes, what sales values sit behind it, and what margin has been taken. And if you would rather not carry the planning risk yourself, that is exactly where partnering with a developer — sharing the uplift rather than selling it outright — can be worth a conversation.

This is the same sum we run on every site we look at. If you own land and want an honest, no-obligation view of what it might support — and what that could be worth — we are always happy to sit down and work through it with you.