Residual Land Value (RLV) is the maximum price a developer can pay for land after allowing for sales revenue, all development costs, finance, and an appropriate developer’s profit. If the price paid exceeds the residual, the deal destroys value; if it’s below, it creates headroom for returns
At Intelligent Land, we use the Land Value Accelerator™ (LVA Method™) to turn this calculation from a back‑of‑envelope guess into an evidence‑led decision—so you negotiate with precision, not hope.
What does Residual Land Value actually mean?
Definition of Residual Land Value = Gross Development Value (GDV) – Total Development Costs – Developer’s Profit.
Where Total Development Costs typically include:
- Build costs (base + abnormals)
- Professional fees
- Section 106/CIL/planning obligations
- Site‑wide infrastructure & utilities
- Finance (debt/equity costs)
- Contingency and risk allowances
- Demolition, remediation and enabling works
- Marketing, sales, letting and legal costs
- Holding costs (rates, security, insurance)
Express RLV per net developable acre/hectare for apples‑to‑apples comparisons.
How is residual land value calculated?
Step 1 – Forecast GDV
Sum revenue from private sales, affordable housing receipts, commercial space (capitalised at yield), plus any grants/incentives. Apply prudent pricing, absorption and incentives.
Step 2 – Cost the scheme
Use measured build costs (BCIS or contractor pricing), add abnormals (ground, flood, contamination, utilities), site‑wide infrastructure, professional fees (often 8–12% of build), planning obligations (S106/CIL), marketing/sales, and a realistic contingency.
Step 3 – Add finance
Model cash flows and interest on peak debt; include arrangement and exit fees. Don’t forget inflation vs. cost escalation.
Step 4 – Allow for profit
Set an appropriate developer’s return (e.g., 15–20% on GDV for housing or a blended hurdle appropriate to risk). Profit is a cost of production in the residual method.
Step 5 – Solve for land
RLV = GDV – (All costs + Profit). Compare to existing use value (EUV) and any overage/compensation to test viability and negotiation range.
Worked example (illustrative only)
- GDV: £80,000,000
- Build cost (base): £38,000,000
- Abnormals & infrastructure: £9,500,000
- Professional fees (10% of build): £3,800,000
- Marketing & sales: £1,200,000
- Planning obligations (S106/CIL): £4,000,000
- Contingency (5% of build + abnormals): £2,375,000
- Finance & fees: £3,100,000
- Developer’s profit (18% of GDV): £14,400,000
Residual Land Value Calculation is therefore…
80,000,000 – (38,000,000 + 9,500,000 + 3,800,000 + 1,200,000 + 4,000,000 + 2,375,000 + 3,100,000 + 14,400,000)
Residual Land Value = £3,625,000
If the net developable area is 7.25 acres (2.93 ha), that’s ~£500,000 per acre (≈ £1.24m/ha).
Why residual land value matters
- Negotiation anchor: It sets the ceiling for a viable land price today.
- Policy testing: It shows how affordable housing, BNG, or design standards affect viability.
- Design optimisation: Unit mix, density and phasing change GDV and cost—and therefore RLV.
- Option and overage: RLV frameworks inform trigger prices and sharing mechanisms.
Common mistakes (and how to avoid them)
- Over‑optimistic GDV: Price to the market you can actually absorb, not the peak headline.
- Ignoring abnormals: Ground, utilities, flood and ecology can erase the margin—front‑load investigations.
- Too little contingency: Layer general and item‑specific risk allowances.
- Under‑counting s106/CIL: Model policy costs accurately, including education, highways and open space.
- Profit treated as a squeeze factor: Profit is a cost in residual appraisal; cutting it hides risk, it doesn’t remove it.
- Single‑point appraisal: Always run sensitivities (± price, ± cost, ± time, ± obligations).
Residual method vs. DCF (discounted cash flow)
- Residual is quick and widely used for land pricing and policy testing.
- DCF models time explicitly (phasing, inflation, interest compounding, development periods).
Best practice: use a DCF for investment decisions and to derive a time‑aware residual for negotiation.
Residual land value and EUV+ (Existing Use Value plus)
Many public‑sector and affordable housing deals benchmark against EUV+: existing use value plus a premium to incentivise release. Cross‑check RLV ≥ EUV+ to confirm deliverability.
How LVA squeezes more value from the same site
Our Land Value Accelerator™ (LVA Method™) improves the residual from both sides:
- Review Planning Permissions: Optimise policy fit and obligations (affordable housing mix, design codes, BNG strategy) to improve certainty and reduce drag on RLV.
- Undertake Research: De‑risk abnormals and infrastructure early (utilities heads of terms, flood strategy, ground remediation scope). Better data = lower contingencies.
- Scenario Testing (AI‑driven): Model density, mix, phasing and tenure to raise GDV and smooth cash flows. In many cases we identify £1m+ land value optimisation uplift within 24 hours by re‑cutting the masterplan and obligations.
FAQs
- How is residual land value calculated? RLV = GDV – (Total Costs + Developer’s Profit). Build a full cost plan (including abnormals, obligations and finance), set a suitable profit, then solve for land. Express £/acre or £/ha.
- What goes into GDV? Private sale values, affordable housing receipts, commercial capital values (rents capitalised at yield), parking, incentives and any grant funding.
- What profit should I use? Depends on risk. Many housing appraisals use 15–20% on GDV (or a blended return). Use sensitivities and align with funder expectations.
- How do BNG and ESG affect RLV? BNG adds establishment and 30‑year management costs (on‑site or off‑site units). Good green infrastructure can also enhance GDV and planning certainty. Model both effects.
- Is residual land value the same as market value? Not always. Market value reflects what the buyer pool will pay today; residual is what a scheme can support on your assumptions. Market value may include competition, scarcity or strategic premiums.
- Can residuals be negative? Yes – if costs and profit exceed GDV. That signals either a need to redesign, reduce obligations, or reconsider the site.
A quick residual value template you can adapt
Inputs
- GDV by product (prices, absorption, yield)
- Build costs (base + abnormals)
- Professional fees (%)
- Infrastructure & utilities
- Planning obligations (S106/CIL)
- Marketing & sales
- Finance (interest, fees)
- Contingency (%)
- Developer’s profit (% of GDV)
- Phasing/timing assumptions
Outputs
- Residual Land Value (total and £/acre/£/ha)
- Sensitivity table (±5–10% on price/cost; ± obligations; ± profit)
- EUV+ cross‑check and negotiation range
Ready to turn a residual into a result?
Intelligent Land doesn’t just appraise, instead we accelerate. With the LVA Method™, we’ll evidence the numbers, de‑risk the unknowns and model the routes that maximise time‑to‑value.
Book a Residual Review Sprint and unlock hidden millions before you enter negotiations.
