Sales rates and absorption in a residual appraisal
Two appraisals of the same site can diverge sharply on absorption alone, because a slower sales programme extends the cashflow, raises peak debt and compounds finance cost.
Two appraisals of the same site, with the same build cost and the same unit mix, can produce residual land values far apart because one assumes 6 sales a month and the other assumes 3. The sales programme changes the finance cost, the duration and therefore the answer, and in a discounted cashflow it changes it twice over.
Reviewers know this, which is why the absorption rate is one of the first inputs a local authority's consultant interrogates. It is also the input applicants most often leave unevidenced, stated as a single figure with no comparable support.
Why the sales programme changes the answer
A residual appraisal subtracts costs from gross development value to leave a residual for land. In a static appraisal the finance cost is calculated on an assumed average debt over an assumed period. In a cashflow it is calculated month by month on the actual drawn balance, and the income side of that cashflow is the sales programme.
Slow the sales and three things happen together. The programme extends, so finance accrues for longer. Peak debt rises, because fewer receipts arrive to pay down the facility. And marketing and holding costs run for additional months. The effect compounds, and on a large phased scheme the residual can move substantially on an absorption assumption alone.
Which is why a reviewer who disagrees with your absorption rate is not quibbling over a detail.
Evidencing values from comparable transactions
Planning Practice Guidance on viability expects assessments to be based on current costs and values rather than on forecasts, and sales values should come from comparable evidence of what similar properties have actually achieved.
What a reviewer expects to see:
- A schedule of comparables with addresses, dates of transaction, floor areas, unit types and achieved prices, reduced to a rate per square metre
- Adjustments stated and reasoned for date, size, specification, floor level, aspect, outlook, parking and tenure
- A distinction between new build and second hand evidence, with any new build premium quantified rather than asserted
- Evidence of the source: Land Registry price paid data, agents' confirmations, or sales records from a comparable development
- A reconciliation showing how the comparables produce the rates used in the appraisal
The reconciliation is the step most often missing. A schedule of twelve comparables followed by an appraisal rate that matches none of them, with no explanation of the adjustment, invites the reviewer to substitute their own figure.
Land Registry price paid data is free, covers England and Wales, and gives transaction dates and prices though not floor areas. Pairing it with energy performance certificate data for floor areas is a common technique and it is worth saying in the report that you have done so.
Absorption rates and their effect on the cashflow
Absorption is expressed as units sold per month, usually per sales outlet. The evidence base for it is thinner than for values, because transaction records show prices rather than rates.
| Evidence source | What it supports | Limitation |
|---|---|---|
| Sales records from a comparable scheme | A rate for a similar product in a similar location | Hard to obtain unless the developer owns both |
| Agent's written opinion on likely rate | A view from someone active in the local market | Opinion rather than data, and often optimistic |
| Transaction volumes in the local area over time | The depth of the market overall | Does not separate new build from second hand |
| Delivery rates on allocated sites in monitoring reports | What has actually been built out locally | Build rate rather than sales rate |
| The developer's own programme and sales plan | Internal assumptions and resourcing | Self-serving unless corroborated |
Combine at least two. A rate supported by an agent's letter and by delivery monitoring for comparable local sites is far harder to dislodge than a rate asserted in a paragraph.
State the rate per outlet and the number of outlets separately on a phased scheme. A 400 unit development selling at 4 units a month takes eight years from one outlet and half that from two, and the resourcing assumption behind the second figure needs stating.
Bulk sale and investment sale assumptions
Where part of the scheme is sold in bulk, to a registered provider, a build to rent investor or an institutional buyer, the value route changes. Affordable units are usually valued on a capitalised rent or a transfer price derived from the registered provider's own appraisal, and the bulk nature of the transaction carries a discount to individual market value.
An investment sale is valued by capitalising the net rent at a yield, deducting purchaser's costs, which produces a single receipt rather than a stream. That removes absorption risk entirely and shortens the cashflow, and a reviewer will expect the yield to be evidenced and the rent to be supported by local lettings evidence.
The combination to watch is a market sale assumption for value with a bulk sale assumption for timing, which takes the benefit of both. Pick one and model it consistently.
Growth assumptions and why most appraisals exclude them
National guidance directs assessments towards current costs and values, which is why most appraisals are run without growth on either side. The logic is that the planning system should not be allocating the benefit of uncertain future growth to one party.
Where a scheme is long and phased in fact, estimating how costs and values might change over the delivery period can be appropriate, and the guidance leaves room for it. If you do it, do it symmetrically. Applying sales growth without build cost inflation, or build cost inflation without sales growth, is the single most common reason a viability report loses credibility, and a reviewer will simply run it both ways.
Illustrative example. A 120 unit scheme is appraised at 5 sales a month from one outlet, giving a 24 month sales period. At 3 a month the period becomes 40 months, peak debt rises and the finance cost increases, and the residual land value falls. Run as a sensitivity matrix at 3, 4, 5 and 6 units a month against values at minus 5 per cent, current and plus 5 per cent, the table shows the authority where the scheme stops supporting the obligations package. All figures here are illustrative only.
Sensitivity testing the inputs
Present a sensitivity matrix rather than a single answer. Values at plus and minus 5 and 10 per cent, build costs at plus and minus 5 and 10 per cent, and absorption at one unit either side of the base case, with the resulting residual in each cell.
Two reasons to volunteer it. The reviewer will run it anyway, so you may as well control the presentation. And a matrix shows where the scheme is actually sensitive, which supports a review mechanism rather than a fixed outcome. Affordable housing review mechanisms in section 106 is where that argument lands.
Sourcing evidence a reviewer will accept
Three habits make the difference. Date everything, because a comparable schedule with no transaction dates cannot be weighted. Name the source for each input, including the person or publication and when. And reconcile every appraisal input back to the evidence, in a table, so the reviewer can follow the chain without reconstructing it.
Where the authority appoints its own consultant, expect the appraisal file in open format rather than a printed summary. A refusal to share the working model reads as an admission and tends to produce a worse outcome than disclosure would.
The RICS professional statement on financial viability in planning sets the conduct and reporting expectations for the author, and a Viability Assessment prepared outside those expectations carries less weight. Where the affordable housing position depends on the outcome, the Affordable Housing Statement has to tell the same story. When an inspector reopens viability at appeal shows what happens where the two documents disagree.
PlanScope can draft the structure and policy framing of a viability narrative from a postcode and a set of answers, flagging where appraisal inputs and comparable evidence are needed rather than inventing figures. The appraisal itself needs a suitably qualified author, and councils expect that author to be named. Reports should be reviewed before submission and PlanScope does not guarantee planning approval. This is general guidance, not legal advice. For specialist technical reports, qualified professional input may be required.
Frequently asked questions
What is an absorption rate in a viability appraisal?
The number of units sold per month, usually stated per sales outlet. It drives the length of the cashflow, the peak debt and the finance cost, so it has a direct effect on residual land value. On a phased scheme, state the rate per outlet and the number of outlets separately, along with the resourcing assumption behind them.
What comparable evidence do reviewers expect for sales values?
A schedule with addresses, transaction dates, floor areas, unit types and achieved prices reduced to a rate per square metre, with stated adjustments for date, size, specification, floor level, aspect and parking, and a reconciliation showing how the comparables produce the appraisal rates. Land Registry price paid data paired with EPC floor areas is a common source.
Should a viability appraisal include growth?
National guidance directs assessments towards current costs and values, so most are run without growth. Where delivery is long and phased in fact, estimating change over the period can be appropriate. Apply it symmetrically: sales growth without build cost inflation, or the reverse, is the fastest way to lose credibility with a reviewer.
How should a bulk sale be modelled?
Affordable units sold to a registered provider are usually valued on a capitalised rent or a transfer price from the provider's own appraisal, with a discount to individual market value. An investment sale capitalises net rent at an evidenced yield less purchaser's costs, producing a single receipt that removes absorption risk and shortens the cashflow.
What sensitivity testing should be presented?
A matrix with values at plus and minus 5 and 10 per cent, build costs at plus and minus 5 and 10 per cent, and absorption at one unit either side of the base case, showing the residual in each cell. The reviewer will run it anyway, and the matrix shows where the scheme is actually sensitive, which supports a review mechanism.
Sources and further reading
This article is general guidance about the planning system in England and, where stated, the rest of the UK. It is not legal or professional advice. Check your local planning authority’s validation requirements and take professional advice for your specific site.