What is Hope Value?
Hope value land auctions represent a unique opportunity for buyers to acquire parcels of land with the promise of future development potential.
In these auctions, “hope value” refers to the anticipation of obtaining planning permission for residential, commercial, or industrial projects, which could significantly increase the land’s value over time.
As buyers contend for these properties, they enter a bidding process, which we feel is fuelled by optimism and speculation about the land’s prospects – it’s also very competitive.
But, with the promise of high-income returns, hope value land auctions also present risks and challenges that buyers must navigate carefully and strategically.
In this article, we delve into the dynamics of hope value land auctions, exploring the opportunities, risks, and strategies involved in acquiring land with the promise of future value appreciation.
Land Values
The price of land varies greatly due to many factors, such as geographical location, existing planning statuses, and designation, e.g., Area of Outstanding Natural Beauty, Grade 3 Pasture, Prime Arable, etc., all of which can affect the price of the land.
Typically, in the UK, according to Savills, as of the end of 2023, agricultural land values ranged from around £5.6K per acre for pasture land to £11K for prime arable.
For garden land, The Grass People studied some fifty locations around the UK and analysed the average price, which is £1,526 per square meter.
Other types of land include woodland, which typically has an average price between £3K and £12K per acre, and land with planning permission that can go for anything that people are prepared to pay. Some prime building land may go for eye-watering amounts of over one million pounds per acre.
Typical hope value land is usually – though only sometimes – located near or adjacent to existing property.
Sometimes, it may be just a parcel of land that, if bought together with the adjoining property, could form the basis of a multi-dwelling development.
In this case, the buyer would purchase the land in the hope of gaining planning permission for several houses on the site, replacing the existing dwelling and utilising the newly purchased parcel of land.
Other pieces of land that come up for auction could be set apart from existing properties and may have had varying uses over the years.
An Example of Hope Value
For example, the lot at Higher Bal, St Agnes, which Lodge and Thomas listed on their website in April 2024.
The land is listed as being designated AONB and Area of Heritage Coast. The land is described by the auctioneer as being a former vegetable garden with a one time garage that had since been removed.
Lodge and Thomas tease us by listing further information, stating that a failed planning application made in 1990 incorporated the adjoining garden. This listing states that the planners rejected the development application because the site was in an AONB and an Area of Coastal Heritage.
Although the AONB conservation boards, Historic England, and Natural England have a say in planning applications, the local planners have the final word.
In this instance the buyer would need to do some detailed due diligence in order to evaluate whether there was the possibility of getting planning permission for a development and by talking with the local planners.
With land designated as such it may be worth getting a specialist land buyer or planning consultant involved pre purchase to evaluate any development feasibility.
Buying land at auction with “Hope Value” can present both opportunities and risks for potential buyers.
Merits of Buying Hope Value Land at Auction
Significant Increase in Value
Land sold at auction with “Hope Value” often indicates that it has development potential in the future which might involve obtaining planning permission for residential, commercial, or industrial purposes. If successful, the land could significantly increase in value over time, offering lucrative returns for the buyer.
Buy at a Competitive Price
Auctions tend to create an environment where multiple buyers bid for the property, allowing buyers to secure the land cheaper than its potential market value, especially if other bidders are not fully aware of the land’s development potential.
Straightforward Purchasing
Typically, auctions offer a transparent and straightforward process for purchasing land. The terms and conditions of the sale are clearly outlined, and buyers have the opportunity to conduct due diligence before bidding. This transparency can provide assurance to buyers that they are making an informed decision.
Fast Transaction Processing
Auction sales typically involve a relatively quick transaction process compared to traditional property sales. Once the auction concludes and the winning bid is accepted, the buyer usually completes the purchase within a specified timeframe, allowing for swift ownership transfer.
Risks of Buying Hope Value Land
Be wary that buying land with “Hope Value” carries inherent risks, as there is no guarantee that planning permission will be granted for development.
Factors can impact the likelihood of obtaining planning approval, such as
- Zoning regulations,
- environmental concerns, and
- community opposition.
Too Much Excitement
Buyers may literally become caught up in the excitement of the auction and end up paying more for the land than its actual value. To avoid overpaying, buyers must set a maximum bid price based on thorough research and financial considerations.
Limited Information
Some auction properties have limited information available to buyers, making the assessment challenging. Conduct thorough due diligence on the land’s true potential and risks to mitigate this risk, including site visits, research local planning policies, and consult with experts.
A Financial Commitment
Purchasing land at auction requires a financial commitment in the form of a deposit and potential additional costs associated with the transaction. Buyers should be prepared to meet these financial obligations and understand the implications of non-completion or defaulting on the purchase.
The “Hopes” of Land Auctions
In summary, buying land at auction with “Hope Value” can offer potential rewards in terms of future development opportunities and value appreciation. However, there are perils that can befall you.
Buyers should approach these transactions with caution, conduct thorough due diligence, and carefully consider the associated risks before making a purchase decision.