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Valuation of loft space

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HelBel65
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Valuation of loft space

#119351

Postby HelBel65 » February 20th, 2018, 6:35 pm

Hello all. Hope this is the right board - I was looking for the Property Investing - Practical board but it doesn't seem to have survived the move from TMF. Either that or I need my eyes testing! Feel free to move it elsewhere if necessary.

In my Victorian building there are 3 flats, all with a share of the freehold. The top flat (TF) would like to build up into the loft but the loft is jointly owned by all 3 freeholders. TF have done a lot of research into current and future valuations (post conversion) and have quotes for the cost of the works. It's all very transparent and I am satisfied that they have shown that there is little or no profit to be made. They just want more space.

Still, we can't just give it to them. It has an intrinsic value even if no marriage value (one that is arrived at by taking future value and subtracting current value plus building costs) and no market value (in that they are the only ones with access, it can't be converted into a separate property which could be sold) Ultimately I suppose it's only worth what TF are prepared to pay, and we are prepared to accept. TF understand that some compensation is due to us, but how to reach a figure? I read on another forum that sometimes a token figure is agreed, to reflect that there is value but nowhere near what a surveyor might say. In the examples given, the figure was 10k, which, though a substantial sum, is indeed only a token in this part of London. I feel inclined to go in that direction, any higher and I suspect the project won't happen and no-one gains anything. Any lower and I feel we would be selling ourselves short. (TF are also offering to take on responsibility for the roof - currently everyone's responsibility - which is probably nearing the end of its useful life)

I'm just posting here to see what thoughts you all have, if there's anything obvious I am missing. Any advice gratefully received.

Many thanks in advance
H

supremetwo
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Re: Valuation of loft space

#119474

Postby supremetwo » February 21st, 2018, 12:49 pm

HelBel65 wrote:Still, we can't just give it to them. It has an intrinsic value even if no marriage value (one that is arrived at by taking future value and subtracting current value plus building costs) and no market value in that they are the only ones with access, it can't be converted into a separate property which could be sold.H

As well as the £10k, you could write in that the top flat will have sole responsibility for maintenance and repair of the roof.

Meatyfool
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Re: Valuation of loft space

#119478

Postby Meatyfool » February 21st, 2018, 1:12 pm

Is that £10k per flat (ie twice) or just £10k flat? And on top taking responsibility for the roof when (you say) it looks to need replacing?

I would get your own quotes for a reroof perhaps? Then if the price is high, you can say "no cash please, you take over maintenance of the roof".

Better perhaps than being £10k in pocket only to be tapped for £15k later?

Meatyfool..

HelBel65
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Re: Valuation of loft space

#119500

Postby HelBel65 » February 21st, 2018, 4:24 pm

supremetwo wrote:
HelBel65 wrote:Still, we can't just give it to them. It has an intrinsic value even if no marriage value (one that is arrived at by taking future value and subtracting current value plus building costs) and no market value in that they are the only ones with access, it can't be converted into a separate property which could be sold.H

As well as the £10k, you could write in that the top flat will have sole responsibility for maintenance and repair of the roof.


Yes, they would agree to that clause I think.

HelBel65
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Re: Valuation of loft space

#119501

Postby HelBel65 » February 21st, 2018, 4:25 pm

Meatyfool wrote:Is that £10k per flat (ie twice) or just £10k flat? And on top taking responsibility for the roof when (you say) it looks to need replacing?

I would get your own quotes for a reroof perhaps? Then if the price is high, you can say "no cash please, you take over maintenance of the roof".

Better perhaps than being £10k in pocket only to be tapped for £15k later?

Meatyfool..


I meant 10k ie 5k each to both other freeholders. When I said about the roof nearing the end of its useful life, in actual fact it’s fine at the moment but is quite old.

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Re: Valuation of loft space

#119502

Postby Watis » February 21st, 2018, 4:28 pm

I would be astonished if a significant increase in living space wasn't matched by a significant increase in value.

Where I live, a ground floor extension on a house adds at least £50k and each extra bedroom a property has is worth around £100k.

Watis

HelBel65
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Re: Valuation of loft space

#119513

Postby HelBel65 » February 21st, 2018, 5:53 pm

Watis wrote:I would be astonished if a significant increase in living space wasn't matched by a significant increase in value.

Where I live, a ground floor extension on a house adds at least £50k and each extra bedroom a property has is worth around £100k.

Watis


Yes, there would be a significant increase, but almost entirely wiped out by the cost of the building work (about 50k) I can see their problem - it would create a fantastic new space but ultimately it will still only be a flat with no outside space and as such, can only rise in value by so much.

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Re: Valuation of loft space

#119515

Postby JonE » February 21st, 2018, 6:00 pm

Watis wrote:I would be astonished if a significant increase in living space wasn't matched by a significant increase in value.

Depends on what one understands by the term 'living space'. Merely extending into the loft space to provide (what could only be described as) storage space may not add a vast amount (and estate agents are usually more careful with their descriptions nowadays when this is involved) but meeting Building Regs to provide a habitable room is a very much more expensive proposition and, in financial terms, may not even be worthwhile in some circumstances.

Provision of a stairway to access the upper level may cut into existing room sizes so the net increase in square footage of floor-space with unrestricted headroom may not be as great as one first supposes and room sizes/layout can have a significant impact on appeal and valuation. Sometimes the presence/absence of similar conversions of similar properties in the street/area can provide clues and indicate whether or not the converted flat would be consistent with the local stock of housing.

TF leaseholder will presumably be expected to meet full costs of amending all leases and some re-think of apportionment of Service Charge account contributions would also seem appropriate if roof and covering are no longer to be common parts.

Cheers!

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Re: Valuation of loft space

#119520

Postby HelBel65 » February 21st, 2018, 6:35 pm

JonE wrote:
Watis wrote:I would be astonished if a significant increase in living space wasn't matched by a significant increase in value.

Depends on what one understands by the term 'living space'. Merely extending into the loft space to provide (what could only be described as) storage space may not add a vast amount (and estate agents are usually more careful with their descriptions nowadays when this is involved) but meeting Building Regs to provide a habitable room is a very much more expensive proposition and, in financial terms, may not even be worthwhile in some circumstances.

Provision of a stairway to access the upper level may cut into existing room sizes so the net increase in square footage of floor-space with unrestricted headroom may not be as great as one first supposes and room sizes/layout can have a significant impact on appeal and valuation. Sometimes the presence/absence of similar conversions of similar properties in the street/area can provide clues and indicate whether or not the converted flat would be consistent with the local stock of housing.

TF leaseholder will presumably be expected to meet full costs of amending all leases and some re-think of apportionment of Service Charge account contributions would also seem appropriate if roof and covering are no longer to be common parts.

Cheers!


They would certainly be doing it properly via Buildings Regs etc, hence the hefty quotes. You make interesting points about the costs of amending the leases, and of course the building would have to be revalued for insurance purposes. This all contributes to their worry that the project may not be worthwhile, so obviously they are hoping for a reasonable response from us, which I feel the 10k suggestion is, under the circumstances.

dspp
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Re: Valuation of loft space

#119524

Postby dspp » February 21st, 2018, 7:05 pm

My records show £26k to do a double-bed room sized loft c/w stairwell and fit-out in a Victorian terrace loft, all to building regs inc inspections and steels and painting etc.

From observing prices of other houses in the street, and similar in the area, I can be fairly certain that the property value goes up by about £25-30k, i.e. roughly per the cost.

Such room makes my property not only more valuable, but also in my particular case more marketable - because mine has been carefully done. Others might find theirs less marketable if shoddily done and evidence of such is near me. It makes my house more liveable, and in my particular case means I have a double room I can rent out (which is worth £5k/yr in my area). My area is a provincial county town.

If there are three flats then this is a £30k lump of space, i.e. you could allocate £10k of value to each flat. So they should have to pay you and your neighbour £10k each, £20k total to buy you out (plus taking on future roofing upkeep, but not gaining control of roof exterior (think balconies and upwards/outwards extension which you ought to retain control over)). It is entirely their problem what it might cost to then convert it. If they do that well then their property value will go up, if not then their property value may even fall. Personally I would also insist that any work is done to building regs and is fully signed off, inc applying party wall act (it will come down through you if it goes badly wrong).

Pro rata the valuation comments from my house to your location. Basically I think you are having the wool pulled over your eyes at £10k being 'generous'.

regards, dspp

HelBel65
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Re: Valuation of loft space

#119547

Postby HelBel65 » February 21st, 2018, 9:02 pm

dspp wrote:My records show £26k to do a double-bed room sized loft c/w stairwell and fit-out in a Victorian terrace loft, all to building regs inc inspections and steels and painting etc.

From observing prices of other houses in the street, and similar in the area, I can be fairly certain that the property value goes up by about £25-30k, i.e. roughly per the cost.

Such room makes my property not only more valuable, but also in my particular case more marketable - because mine has been carefully done. Others might find theirs less marketable if shoddily done and evidence of such is near me. It makes my house more liveable, and in my particular case means I have a double room I can rent out (which is worth £5k/yr in my area). My area is a provincial county town.

If there are three flats then this is a £30k lump of space, i.e. you could allocate £10k of value to each flat. So they should have to pay you and your neighbour £10k each, £20k total to buy you out (plus taking on future roofing upkeep, but not gaining control of roof exterior (think balconies and upwards/outwards extension which you ought to retain control over)). It is entirely their problem what it might cost to then convert it. If they do that well then their property value will go up, if not then their property value may even fall. Personally I would also insist that any work is done to building regs and is fully signed off, inc applying party wall act (it will come down through you if it goes badly wrong).

Pro rata the valuation comments from my house to your location. Basically I think you are having the wool pulled over your eyes at £10k being 'generous'.

regards, dspp


The 10k is my current thinking, not theirs. All they’ve done so far is demonstrate that the cost of the work wipes out any real profit. Out of interest, where do you get the 30k figure from?

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Re: Valuation of loft space

#119709

Postby dspp » February 22nd, 2018, 4:02 pm

The £30k is from typical increase in value in my provincial town. Yours might be more.

At the moment all three flats own the collective option to develop into the loft. That is a future option with a value that I estimate at £30k. You are being asked to sell that option to one of the flats, so the other two flats should get £20k total. If this was in London I would come up with a much higher number.

The default is to not sell the option imho.

regards, dspp

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Re: Valuation of loft space

#119853

Postby HelBel65 » February 23rd, 2018, 10:08 am

dspp wrote:The £30k is from typical increase in value in my provincial town. Yours might be more.

At the moment all three flats own the collective option to develop into the loft. That is a future option with a value that I estimate at £30k. You are being asked to sell that option to one of the flats, so the other two flats should get £20k total. If this was in London I would come up with a much higher number.

The default is to not sell the option imho.

regards, dspp


Well if there was any actual likely profit, I'd be completely in agreement - we are in London (and hey, who wouldn't love a juicy lump sum for doing b****r all!) But there isn't, I can see that from their quotes and valuations, and I only have to look at Rightmove for myself. Which keeps bringing me back to the idea of a token figure, which a) remunerates us to some extent and b) enables them to go ahead. Leaving a big draughty filthy loft space empty forever benefits nobody, and is presumably wasting energy too.

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Re: Valuation of loft space

#119877

Postby KTLandlord » February 23rd, 2018, 11:49 am

HelBel65 wrote:
supremetwo wrote:
HelBel65 wrote:Still, we can't just give it to them. It has an intrinsic value even if no marriage value (one that is arrived at by taking future value and subtracting current value plus building costs) and no market value in that they are the only ones with access, it can't be converted into a separate property which could be sold.H

As well as the £10k, you could write in that the top flat will have sole responsibility for maintenance and repair of the roof.


Yes, they would agree to that clause I think.


Although this may seem like a good idea, in practice it is a bit of a no-no.

What if in 20/50/100 years time the roof starts leaking and the then owner of the top floor flat can't be found/refuses to repair it?

You do not want the possibility of such a scenario causing you or your other neighbour difficulties should you decide to sell your flats in the future.

Much better to demand that the new roof resulting from the loft conversion comes with a lengthy insurance backed guarantee.

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Re: Valuation of loft space

#119892

Postby dspp » February 23rd, 2018, 12:25 pm

At the moment doing a roof repair involves going into a empty loft and getting on with it, with no real disruption to the rooms below. In the future a roof repair involves disruption (and costly ripping open plasterboard etc) to whoever is in the loft rooms.

I take it you have looked carefully at the plumbing. Are there header tanks in the roof ? Are they per flat, or in common ? How are they accessed ? Will you need to put coffin tanks in the eaves ? If so how would they be accessed ?

At the moment the loft space itself should not be wasting energy. It should be insulated and so will in essence float at ambient temperature plus/minus any solar gain. If there is any heat loss into it from the flat below that is their concern, not yours. Ditto a properly done loft job should include the correct amount of insulation in the rafters etc. The Bldng Regs on that are rightly quite draconian and so people do try and skimp on that btw.

Offer to swap flats with the top flat and pay them (as a new bottom flat) a token amount for the loft ownership. See how they respond ! They ought to be "indifferent" if your calculation of the cost/benefit is correct .... I bet you that you don't get an indifferent response. Which in turn would likely indicate to me that a token amount undervalues the option value of the loft.

regards, dspp

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Re: Valuation of loft space

#119970

Postby JonE » February 23rd, 2018, 5:28 pm

KTLandlord wrote:What if in 20/50/100 years time the roof starts leaking and the then owner of the top floor flat can't be found/refuses to repair it?


This is one of the things that would have to be addressed in the amended leases. Failure to meet obligations would be a breach although remedies may be limited by relevant legislation 20/50/100 years from now.

Having said which, my own initial tendency (assuming existing leases are satisfactory) would be to retain the roof structure and covering in 'common parts' so that all leaseholders have a say in future maintenance and changes (such as sticking PV or solar heating panels on the roof).

Cheers!

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Re: Valuation of loft space

#120419

Postby HelBel65 » February 25th, 2018, 9:06 pm

Thanks everyone for your replies, much appreciated. H


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