Residual land value modelling, done properly.
Residual land value modelling is at the core of every development appraisal. Domus gives you the structure to build the model once, stress-test the assumptions, and carry the live RLV into viability, planning, and project decisions.
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How the residual method works
How a residual land value calculation works.
The residual land value method works backwards from GDV. Deduct all development costs and the required developer profit from the gross development value. What's left is the maximum a developer can pay for the land and still make the scheme viable.
A spreadsheet can run the formula. The real challenge is keeping the assumptions consistent, tested, and tied to a scheme record that the whole team is working from.
Gross Development Value: the total value of the completed scheme
Development costs: build costs, professional fees, finance, and contingencies
Developer's profit: the minimum return required to justify the risk
Residual land value: what's left after costs and profit are deducted from GDV
Where teams use it
RLV modelling that connects to what comes next.
Site acquisition
Run an RLV before you bid. Know what the site can support, and what it can't, before you're in exclusivity.
Planning viability
Use the residual land value to demonstrate viability under section 106 obligations. Test how affordable housing percentage moves the position.
Scenario comparison
Compare residual land values across unit mix, tenure split, and phasing to find the version of the scheme that works.
Step by step
How to calculate residual land value.
The residual land value formula is straightforward in principle. In practice, the accuracy of each input determines whether the number is useful or misleading.
Calculate gross development value (GDV)
Multiply the number of units of each type by their net sales area (sqft or sqm) and the applicable price per sqft. Do this separately for each tenure: private sale, shared ownership, affordable rent and market rent. Sum all tenures to get total GDV.
Establish total development costs
Build costs cover the main contractor, infrastructure, external works, and abnormals. Add professional fees (architect, QS, structural, planning consultant), planning and statutory costs (section 106, CIL, BNG), sales and marketing, and finance costs (interest on drawn capital at your expected rate across the programme).
Deduct developer's profit
Developer's profit is typically 17-20% of GDV for residential schemes, or 15-20% on cost depending on risk profile and funder requirements. It represents the minimum return needed to justify the development risk and is deducted before arriving at the residual.
Calculate the residual
Residual land value = GDV minus total development costs minus developer's profit. The result is what the developer can afford to pay for the land. Deduct SDLT, legal fees, and agents' fees to arrive at the net land bid.
Test the residual against comparables
Compare your RLV against benchmark land value (existing use value plus premium) for planning viability purposes, or against comparable land transactions for site acquisition. If the RLV exceeds the benchmark, the scheme is considered viable at the tested obligation level.
The formula
RLV = GDV − Total Development Costs − Developer's Profit
Where total development costs include build costs, professional fees, planning obligations, finance charges, and contingency. Sensitivity analysis should test how changes to GDV assumptions, cost inflation, and finance rates move the residual position.
Common questions
Residual land value: frequently asked questions.
What is residual land value?+
Residual land value (RLV) is what a developer can afford to pay for a site after deducting all development costs and the required profit margin from the gross development value (GDV). It represents the maximum viable land purchase price for a given scheme.
How is residual land value calculated?+
RLV = GDV minus total development costs minus developer's profit. GDV is the total value of the completed scheme; development costs cover build, fees, finance, and statutory costs; and developer's profit is typically 17-20% of GDV for residential schemes.
What is the residual valuation method?+
The residual valuation method estimates what a developer can pay for land by starting with the GDV of the completed scheme, then deducting all costs and a target profit margin. What remains is the residual: the maximum supportable land value.
How does residual land value relate to planning viability?+
RLV is the methodology behind planning viability assessments. A viability assessment tests whether the RLV with full planning obligations (affordable housing, s106, CIL) still exceeds the benchmark land value. If it falls short, obligations are considered unviable at that level.
What inputs go into a residual land value calculation?+
Key inputs: GDV (unit prices, floor areas, tenure split), build costs, professional fees, planning and statutory costs, finance charges, contingencies, developer's profit target, and programme timeline. Each assumption affects the RLV, which is why sensitivity testing is essential.
What software is used for residual land value modelling?+
Most teams use spreadsheet models built from scratch or adapted templates. Domus provides a connected development appraisal model where the RLV is live. Changes to GDV, costs or programme update the residual position instantly, without rebuilding the model.