The Development Appraisal: How GDV and Profit on Cost Decide Whether You Get Funded

A development appraisal is a financial model that tells a developer, and the people funding them, whether a property scheme makes enough profit to be worth building. It sets the gross development value of the finished units against the cost of the land, the build, the fees and the finance, and reports what is left as profit. Get the appraisal right and you know what you can pay for a site and who will fund it. Get it wrong and you either overpay for land or run out of money halfway through.

Every lender, equity partner and joint venture backer we deal with starts with the appraisal. It is the single document that decides whether a scheme is fundable, so it is worth understanding line by line rather than treating it as a spreadsheet the accountant produces at the end. In Hackney and the wider east London property market, where land is expensive and margins are tight, the appraisal is often the difference between a development that gets funded and one that stalls.

This guide walks through what a development appraisal contains, how profit is measured, how the residual land value method works backwards to a land price, and why the appraisal you submit is never the appraisal a funder relies on.

A development appraisal is built from a handful of lines, and each one is a place where a scheme can quietly become unviable.

Gross development value, or GDV, is the total the finished scheme will sell or let for. On a residential development it is the sum of the individual unit values, supported by comparable evidence rather than optimism. GDV is the number every other figure is measured against.

Land cost is the purchase price plus stamp duty, agent and legal fees on acquisition. On many east London sites the land is the largest single line, which is why the residual land value method covered below matters so much.

Build cost is the cost of construction, usually taken from a quantity surveyor's estimate or a fixed price building contract. It is quoted per square foot or per square metre and rises sharply for basements, tall buildings and heritage work.

Professional fees cover the architect, structural engineer, quantity surveyor, planning consultant and project manager, typically running at 10 to 15 per cent of build cost.

Finance costs are the interest and fees on the senior debt, any mezzanine finance and the equity. Because interest is usually rolled up and compounds over the term, finance is a bigger line than first time developers expect.

Contingency is a buffer against the unexpected, normally 5 to 10 per cent of build cost. A scheme with no contingency is a scheme betting nothing will go wrong.

Section 106 and CIL are the planning obligations: Section 106 agreements fund affordable housing and local infrastructure, and the Community Infrastructure Levy is charged per square metre of new floorspace. Both can run to six figures and must sit in the appraisal from the start, not appear as a surprise after planning permission.

Sales and marketing costs cover agents, marketing and the legal cost of selling the finished units, usually 2 to 4 per cent of GDV.

Profit is what is left when every one of these lines is subtracted from GDV. It is the output of the appraisal, not an input, which is the point most developers miss.

There are two ways to express development profit, and confusing them is one of the fastest routes to a rejected application.

Profit on cost divides profit by total costs. If a scheme costs 4 million pounds to deliver and returns 800,000 pounds of profit, the profit on cost is 20 per cent. This is the measure most lenders and equity partners use, because it tells them how much cushion sits between the scheme and a loss.

Profit on GDV divides profit by gross development value instead. The same 800,000 pounds of profit on a 4.8 million pound GDV is a profit on GDV of about 16.7 per cent. It is always a smaller number than profit on cost, which is why developers sometimes quote it selectively.

As a rule, senior lenders want to see a profit on cost of at least 17.5 to 20 per cent before they will fund a scheme, and many equity partners want more. The reason is simple: that margin is the buffer that absorbs a build overrun or a soft sales market. A scheme showing 12 per cent profit on cost has almost no room to be wrong, and funders treat it as a scheme that has not been stress tested. When we present a deal we always state which measure we are quoting and show both, because a funder who has to ask has already started to doubt the numbers.

Most first time developers build an appraisal forwards: they take the land price they have agreed and see what profit is left. Experienced developers and the people who fund them work backwards, using the residual land value method.

The residual method starts from GDV, subtracts build costs, professional fees, finance, contingency, planning obligations, sales costs and the profit the scheme must make, and reports what is left as the maximum you can pay for the land. In other words land is treated as the residual: it is whatever is left over once the scheme has paid for everything else and made its required profit.

This matters because it stops you overpaying. If the residual land value comes out at 1.2 million pounds and the vendor wants 1.5 million pounds, the scheme does not work at that price, and no amount of optimism about GDV will fix it. The residual method turns the appraisal from a justification of a deal you have already done into a tool for deciding whether to do it at all.

It also explains why two developers can bid very differently for the same site. A developer with cheaper finance, a lower profit requirement or a more efficient build can support a higher residual land value, which is often how joint venture equity backed developers outbid cash buyers.

A single appraisal is a snapshot built on assumptions, and every assumption can move. Sensitivity testing re-runs the appraisal with pessimistic inputs to see how much profit survives.

The two tests every funder runs are a fall in GDV and a rise in build cost. Drop GDV by 5 per cent and increase build cost by 10 per cent, and a scheme that showed 20 per cent profit on cost can fall below 10 per cent, or into a loss. A scheme that still clears its profit threshold after both shocks is genuinely robust. One that only works on the base case is a scheme that needs everything to go right.

We also test the finance line, because a scheme that overruns by six months carries six more months of rolled up interest, which quietly eats the margin. Sensitivity testing is not pessimism for its own sake. It is the difference between a developer who knows where their scheme breaks and one who finds out on site.

The appraisal you submit is never the appraisal a funder relies on. Every lender, mezzanine funder and equity partner re-runs your numbers through their own model, and they haircut the inputs they do not trust.

They trim GDV to their valuer's figure rather than yours, which is almost always lower. They add contingency if yours looks thin. They lengthen the programme, because schemes overrun more often than they finish early. They apply their own finance costs, which may be higher than you assumed. By the time a funder has finished, the profit on cost they see can be several points below the one you submitted, and that is the number that decides the deal.

The developers who get funded are the ones whose appraisals survive this treatment, because they built in the haircuts from the start. Before we take a scheme to market we model it the way a funder will, using independent development appraisal and equity calculators rather than the developer's own spreadsheet, so that the numbers we present are the numbers that will still stand after a credit committee has been through them. Where a scheme is tight on the debt alone, this is also where an equity partner earns their share, by carrying the risk the senior lender will not.

There are three ways to build a development appraisal, and each suits a different stage.

Dedicated appraisal software, of the kind chartered surveyors use, handles complex phased schemes, cash flow timing and detailed sensitivity tables. It is thorough but expensive, and overkill for a single small site.

Spreadsheets are where most developers live. A well built spreadsheet is flexible and transparent, but it is also where errors hide: a wrong cell reference or an optimistic GDV can make a doomed scheme look fundable. Anyone relying on a spreadsheet should have someone else check the formulas.

Online calculators are the fastest way to test whether a deal is worth a closer look. Our development finance calculator and profit calculator let you sketch the headline numbers in minutes before you commit to a full appraisal. They will not replace a quantity surveyor's build estimate or a valuer's GDV, but they will tell you quickly whether a site is worth pursuing. When the headline numbers stack up, speak to our team and we will pressure test the full appraisal with you.

Development appraisals are not only for residential schemes. The same model runs a commercial property scheme, a mixed use building or a build to rent block, and the main difference is how gross development value is derived. On a residential development the GDV is a sum of sales values; on a commercial property the GDV is the capital value of the rental income once the building is let. Either way the appraisal tests the same thing: the financial viability of the development project.

Financial viability also drives the planning system in England. Where a scheme cannot support the full policy requirement for affordable housing, a viability appraisal submitted to the local authority shows what the development project can actually afford. Landowners, developers and the council all argue from an appraisal even when they disagree on the inputs, and the architecture, unit mix and density all feed the numbers. An appropriate site value for the land is one of the most contested inputs of all.

Because so much rests on the numbers, chartered surveyors often produce a formal appraisal report, and in a contested viability case a surveyor may act as an expert witness, defending the valuations and site value assumptions before a planning inspector in England. Whether the property is residential, commercial or mixed use, the report stands or falls on the quality of its evidence, and lenders lean on independent valuations rather than the developer's own view of property values.

Good project management keeps the appraisal honest as the scheme progresses. A building that is redesigned, delayed or re-tendered changes the appraisal, and the developers who stay fundable are the ones who re-run their development appraisals whenever a major input moves rather than trusting the version they raised money on. Reviewing a development appraisal is a service we provide alongside arranging the finance, because a fundable scheme and a defensible appraisal are the same thing.

Most unviable schemes are not undone by bad luck but by assumptions the developer wanted to believe. The common ones are worth naming.

The first is an optimistic GDV, pricing every unit at the highest comparable in the street rather than the average. The second is a build cost that has not been updated for current tender prices, which have risen faster than many appraisals assume. The third is a programme that is too short, ignoring the reality that planning conditions, weather and materials all cause delay. The fourth is no contingency, or a token amount that would not cover a single unforeseen ground condition. The fifth is forgetting Section 106 and CIL, which can turn a marginal scheme into a loss once the planning obligations are counted.

A funder has seen all five before, which is why they re-run the numbers. The developers who raise money quickly are the ones who have already told themselves the truth, so there is nothing left for the funder to find.

How do you calculate GDV? Gross development value is the total open market value of the completed scheme. For a residential development you value each finished unit against recent comparable sales, then add them together. For an investment scheme you capitalise the expected rental income at an appropriate yield. GDV should always be supported by evidence, not by the price the developer hopes to achieve.

What are the three types of appraisal? In development terms, appraisals are usually described as the residual appraisal, which works backwards from GDV to a land value; the profit appraisal, which fixes the land price and reports the profit; and the cash flow appraisal, which times every cost and receipt to show finance costs and peak debt. Most funded schemes use all three views of the same scheme.

How much is an acre of development land worth? There is no fixed figure, because land value is residual. An acre with consent for a dense scheme in a high value area like Hackney is worth many times the same acre with no planning and a low value end product. The residual land value method is the only reliable way to answer the question for a specific site, which is why the appraisal comes before the land offer.

What is a full development appraisal? A full development appraisal models every line of a scheme, from GDV through land, build, fees, finance, contingency and planning obligations to profit, and stress tests the result. It is the document lenders and equity partners rely on, and the basis on which we arrange funding.

Data sources: HM Land Registry Price Paid Data 2025; local planning authority Community Infrastructure Levy schedules 2025; RICS guidance on the valuation of development property.