The structure
- Gross development value: each unit's expected price or value, totalled; see GDV explained
- Sales costs: agents' and legal fees on sales, and any incentives
- Net development value: GDV less sales costs
- Land costs: price, stamp duty, legal and acquisition costs
- Build costs: construction, demolition, abnormals and external works
- Professional fees: architect, engineers, QS, project manager, planning consultants
- Statutory and other costs: Section 106, Community Infrastructure Levy, warranties, utilities, building control
- Contingency
- Finance costs: interest, arrangement, exit and monitoring fees
- Profit: net development value less total costs
Typical allowances
Lenders compare your figures with norms and with their monitoring surveyor's view. Common allowances include professional fees of around 8% to 15% of build cost depending on scheme complexity, and contingency of around 5% to 10% of build cost, more for conversions and refurbishment where hidden issues are likely. Build costs should come from a contractor's tender or a QS estimate rather than a rule of thumb. These are typical ranges, not fixed requirements.
Finance costs
Include interest for the whole term, covering the build and the sales period, plus the arrangement fee, any exit fee, the valuation, the monitoring surveyor and legal costs. A month-by-month cash flow gives the most accurate interest figure. See how much development finance costs.
Profit measures lenders use
Lenders look at profit two ways:
- Profit on cost: profit divided by total costs
- Profit on GDV: profit divided by GDV
Many senior lenders look for profit on cost of around 20% or more, or profit on GDV of around 15% to 20%, with expectations varying by scheme and lender. A thin margin leaves little room for overruns or falling prices, and may limit leverage.
Sensitivity testing
Show what happens if things go wrong: GDV down 10%, build costs up 10%, or the programme extended by three to six months. If the scheme still makes a profit and repays the lender, it is more fundable. Lenders will often run these tests themselves.
Presenting it
Accompany the appraisal with sources: comparables for GDV, the contractor's quote, fee proposals and planning obligations. Include a summary page, the programme and a schedule of accommodation. Our guide to what development lenders look for covers the rest of the pack. When the figures are ready, compare lenders on Instant Quotes.
Residual land value
The same appraisal can be turned around to work out what to pay for a site. Start with the GDV, take off sales costs, build costs, fees, contingency, finance and your target profit, and what is left is the residual land value: the most the site is worth to you for that scheme.
Running a residual appraisal before you bid helps avoid overpaying. It also shows lenders that the land price is supported by the scheme rather than by optimism. Because small changes in GDV or build cost move the residual value sharply, test it with the same sensitivities lenders will apply.
Common questions
What profit margin do development lenders want?
Commonly around 20% profit on cost or 15% to 20% on GDV, though expectations vary by lender and scheme.
How much contingency should I include?
Commonly around 5% to 10% of build cost, more for conversions and refurbishment.
Should finance costs be in the appraisal?
Yes. Interest, fees and monitoring costs are part of total costs and affect both profit and loan to cost.
What is a residual land value?
The most you could pay for a site: GDV less all costs and a target profit. It is the same appraisal, solved for the land price.
This guide is for general information only and should not be treated as legal, tax or financial advice. Lender requirements depend on the property and your circumstances.
