How to Calculate Maximum Land Price
Maximum land price is the residual purchase price that leaves enough value to cover non-land costs and the required developer profit.
What the analysis measures
Define gross or net development value, all non-land costs, the profit basis and acquisition costs. Profit on cost and margin on value are not interchangeable.
Calculation framework
For profit on cost, divide development value by one plus the required return before deducting non-land costs. Then divide by one plus land transaction costs.
Underwriting review
Stress net sale prices, build cost, programme, finance and absorption. Land is the residual, so small changes in value or cost can create a much larger percentage change in land value.
How to use the result
Use the result as a bid ceiling, not a target. Preserve headroom for diligence findings, planning conditions, abnormal works and market movement.