Lecture8 Hypothetical Development Method of Valuation Hypothetical development: is the process of deriving a land value, or price to be paid for a site which is not developed to its highest and best use by hypothetically developing it, then systematically stripping back the components of the development including construction costs, profit and holding costs to arrive at the value or price to be paid for the property as a development site When and why is it used? o To determine the value of land against the existing use when the existing use may not be its highest and best use o To measure the value of land when there are no vacant land sales available Gross Realisation o Are the sales of the finished product, units, townhouses, office bldg. that is adopted as the starting point o Sales are derived from the market place via sales of similar property sold with adjustments. The primary adjustment being for time, location and quality of improvements Commercial Buildings o Office Buildings Gross realisation is established by determining the market value of a property using capitalisation of the net income Gross Rent Collected Outgoings = Net Rent o Net Rent is capitalised at a market capitalisation rate to determine that value of the property o Income rent (office, retail, roof top), parking, naming rights, signage rights o Outgoings council rates, water rates, land tax, insurance, insurance, repairs, management fees, planned maintenance, common powerwater Unit or Townhouse Development Site o Gross Realisation in residential development is by direct comparison of newly completed units or townhouses in nearby comparable developments o What will the completed units or townhouses in my proposed development sell for = Gross Realisation o E.g. o One of the key issues to remember when deducing sales from the market, is the number of dwellings in the sale block compared to the number of dwellings in your development