How To Value the Freehold of a Block of Flats – How Much Is It Worth?
If you’re just at the very start of the process of buying the freehold of a house in a street of homes, or a block of flats, you only need an estimate of the freehold value.
You will also want to know the current market value of the freehold, possible purchase price, reversionary value, marriage value, ground rent for sale, investment value of the freehold and freehold value of the property plus the present value of the future income stream. This knowledge empowers you to approach participating leaseholders, manage companies involved, and negotiate with willing sellers or freehold owners from an informed position.
The article explains the valuation of freeholds and the methods that surveyors use to value a freehold, including comparison, the residual method and the profits method. It also explains what you can expect a surveyor to provide in a formal valuation and how you might make an initial estimate of value, when you might need advice from a surveyor and the role of the Leasehold Valuation Tribunal (LVT) and First Tier Tribunal (FTT).
First steps to valuing the freehold of a block of flats
If you’re in the early stages of buying the freehold of a block of flats, you may only need an estimate of the freehold value. In order to professionally value your flat the valuers will complete checks on your flat and consider the following: Assess Lease Length & Its Impact The reversion method is how valuers determine the value of your property based on the term of each lease.
Use Online Valuation Tools
There are several ways to arrive at a rough figure and some online valuation tools will calculate the value of the freehold interest in your property. Online valuers’ calculations take into account the average house price for the area or the average value of flats, the annual ground rent, ground rent levels and the length of the lease.
through urban development, the number of leasehold flats or houses and the overall condition of the block. Our freehold valuation tools do not take account of commercial properties or the income generated from management of the freehold and rental income from commercial or rent act tenancies.
Try our Freehold Purchase Calculator to get an initial estimate before speaking to a surveyor.
Look at Similar Freehold Sales
Another common approach is to use the Comparable Sales Method. The Comparable Sales Method is a method of freehold valuation by comparing published sales of similar freehold properties. The comparable sales are assessed against a number of criteria which may include number of flats, location, remaining lease term and other comparable characteristics.
Comparable data is held on the Land Registry website and available from a number of specialist websites that offer freehold properties for sale. Bear in mind that every building’s situation is unique, so this method should only inform, not determine, your estimate.
Consider Costs & Liabilities
Consider Costs & Liability The value of any freehold is largely dependent on the current costs and liabilities of the building it holds.
This method also considers the potential costs to the leaseholder should you decide to extend the lease individually rather than collectively purchasing the freehold. A well-managed, low-liability building is generally worth more than one requiring significant remedial work.
How To Value the Freehold of a Block of Flats
It is not possible to give an accurate overall value for the freehold of a house or flat without first organising a group of interested leaseholders, who collectively can afford to purchase the freehold.
The rateable value of the house or the property as a whole will also be a factor, but it is unlikely that the online valuers will have any local knowledge and the value limits do change as the area changes eg.
Contact a Professional
A valuation carried out by a chartered surveyor is the only reliable way to establish the true freehold value of your property. They then apply the various mathematical formulas to arrive at a figure and support their valuation with a full report.
This report will then form the basis of your formal negotiations with any freeholder or managing agent. It also reduces the risk of overpaying or submitting an offer that could be legally challenged.
The Statutory Method For Calculating a Freehold Valuation
Lease valuation for a flat is a complex process best left to professionals.
Once you acquire your valuation, there are set statutory calculations that the professional will undertake using the reversion method (lease length), capitalisation method (ground rent) and taking into account marriage value where applicable.
This process can only really be undertaken by a professional, due to the complexity. Here’s what they will complete in order to professionally value your flat:
Assess Lease Length & Its Impact
The reversion method considers how long is left on each lease. Due to the short remaining term of each lease (particularly if less than 80 years) this method also considers the increase in value of the freehold due to marriage value i.e.
Valuers also look at the lease extension premium formula, taking into account potential costs to the leaseholder if they extend individually instead of collectively purchasing the freehold.
Calculate Ground Rent & Income Streams
The capitalisation method assesses the value of future ground rent income that would otherwise be due to the freeholder. A higher or escalating ground rent increases the property’s freehold value.
Any additional income, such as management fees, service charges, or commercial rents (if applicable), is also factored into the total freehold worth.
Closing Thoughts
Getting an approximate idea of the value before approaching participating leaseholders, the companies concerned and the willing seller or owner of the freehold can be a powerful negotiating tool. Online calculators or sales comparisons can give early insight, but accurate valuation depends on professional expertise.
If you are looking to purchase your freehold, The Freehold Collective can offer project management assistance throughout the process.
Start today by using the Freehold Purchase Calculator, then book a free consultation with our expert team to discuss the next steps in your journey to collective ownership.