Assessing A Plot For Building

How To Assess The Plot
Assess The Practicalities Of The Site
Should You Buy?

It's all very well knowing where to look and how to find a building plot for your dream home, but once you've started looking, how do you know which is the right plot for you?

How To Assess The Plot

There are a number of things to consider, including the location, value, access to the plot, services and planning permission. Before you invest a significant amount of money, it's important that you assess the plot properly to make sure it's practically and financially suitable, for what you intend to build on it.

What The Plot's Value?

Plots derive their value from the eventual dwelling that will or should be built on it; establishing that value is important, and it can be fairly straightforward to assess. A house is simply assessed in direct comparison to similar houses in the areas, and the values they have achieved on the market. A simple search of local estate agents can quickly inform you about the local market - the types of houses being sold, the asking prices and which homes sell best (those 'under offer').

The Land Registry website also has details of all properties that have been sold.

Know The Plot's Potential

Plots, like houses, have ceiling values, defined as the price beyond which it is no longer economically viable. These will vary in different areas of the country, and it's important to understand the local market and neighbourhood around the plot, so as to ensure your project makes economic sense. When you are considering a plot, think about what you'd like to build, and compare that with the type of houses in the surrounding area, in order to avoid over or under developing your land.

For example, if a plot of land is purchased in an area where four-bedroom houses are most in demand or popular, and the land owner decided to build a six-bedroom house, they may find that despite spending a lot of money on the house, when they eventually come to sell, they will not fetch much more than the average asking price for the four-bedroom houses in the area. This is an example of someone 'over-developing' a plot, and they have exceeded the carrying capacity of the plot. On the other hand, if the land owner decides to build a two-bedroom bungalow or cottage on the same plot, they will have under-developed the plot, and will not be able to realise the full potential of the plot.

Will You Make A Profit From It?

The final worth of any plot is the difference between the cost of building the house and the final value of the completed house. However, that value excludes any profit, without which, very few developers would be in existence, and self build would lose its appeal. The balancing point is the extent of the profit margin; for self builders, this used to be the third, third, third rule. When plots were more plentiful, it was generally estimated that plot price would form roughly one third of the final value of the completed house, the build costs would account for a further third, and the last third would be the mark-up in equity, or profit.

However, this was only an ideal, and not necessarily always achievable or even required for some self builders. Regional variations in things like plot availability and build costs have distorted this rule in recent years. In areas where plots are more abundant, and property values are relatively low, the plot price can be close to a quarter of the value of the final house. In areas where plots are rare, and property prices are high, the plot value can be 50% or more of the final value of the completed house.

When building costs are added to land costs however, the profit margin, in terms of a percentage yield, related to expenditure, are still around the 30%. This is largely due to the fact that huge variations in the ration of land costs is balance be the relatively small variations in build costs between different regions, and the high market values of the finished property.