The construction cost line in a development appraisal: getting it right
The single number that decides whether a scheme is viable. Why developers under-budget it, and how an independent cost expert appraises it.
Key facts
- Construction cost typically represents 55–75% of GDV on residential development.
- Appraisal cost lines are most commonly understated by 8–15% versus builder quotes.
- Contingency should be held separately, not buried in the construction rate.
- Funder due-diligence almost always re-tests the construction cost line, being right first time avoids appraisal re-cuts.
- An independent appraisal cost line typically costs £1,500–£6,000 for projects up to £10m GDV.
The construction cost line is the largest single number on a residential development appraisal, usually 55–75% of GDV. Get it wrong by 10% and a viable scheme becomes a loss-making one.
Appraisal cost lines are wrong in the same direction more often than not. They are wrong low.
Why appraisal cost lines drift low
Three structural reasons:
- Pressure for viability. A scheme that does not appraise does not proceed; cost is the easiest line to flex.
- Benchmark rates are out of date. Construction inflation in 2022–2024 ran ahead of most published rate books. Rates not updated against live quote data lag the market.
- Prelims and OHP excluded. Pulled out for "fee clarity" and then forgotten when the contractor quotes.
What goes in the cost line
By element, against categories:
| Element | Typical % of build cost | |---|---| | Substructure | 8–14% | | Frame and upper floors | 8–12% | | External envelope | 12–18% | | Roof | 3–6% | | Internal walls and finishes | 10–15% | | M&E services | 18–28% | | Externals and drainage | 5–10% | | Prelims | 10–16% | | Contractor OHP | 6–12% |
A cost expert-prepared appraisal builds the cost line element by element from current quote data, then sense-checks the total against £/m² benchmarks.
What sits outside the cost line (but inside the appraisal)
- Professional fees: 10–14% of construction cost
- Planning and building control: 1–2%
- s106 and CIL: site-specific, but always significant in London
- Finance costs: dependent on debt structure
- Sales / marketing / agent fees: 1.5–3% of GDV
- Contingency: 5–10% on construction
- Developer profit: typically 17–22% of GDV for residential
When to commission the cost line
Before debt is sought. Lenders almost always re-test the construction cost line in their own due diligence, and a difference of more than 5% between developer appraisal and lender's cost expert triggers an appraisal re-cut. An independent cost expert-prepared cost line, supplied with the appraisal, almost always avoids that.
What a Costed appraisal cost line includes
- Elemental cost plan to against the scheme drawings.
- £/m² benchmarks for the relevant scheme type, sourced from our current builder quotes.
- Prelims and OHP separately identified.
- Contingency separately stated and held above the cost line.
- One-page summary suitable for inclusion in the appraisal pack.
- Turnaround typically one week from receipt of drawings and outline spec.
Frequently asked
- What is included in the construction cost line?
- Substructure, superstructure, internal finishes, M&E, externals, drainage, prelims, contractor OHP. Excluded: site acquisition, professional fees, finance costs, marketing, contingency (held separately), s106 / CIL (held separately).
- How is contingency typically held on a development appraisal?
- 5–10% design and construction contingency held separately from the construction cost line, plus 1–3% client contingency held above the appraisal. Lenders typically require both to be visible.
- What is a fair construction cost rate for new-build residential in London?
- For new-build flats over basement parking: £3,800–£5,200/m² GIA in 2026. For new-build houses: £3,200–£4,400/m² GIA. Both ranges before contingency and prelims uplift.
- Should the cost line include contractor's overhead and profit?
- Yes. OHP is part of the construction cost the contractor will charge, typically 10–18% of trade cost. Pulling it out of the appraisal cost line creates a misleading viability picture.
- How does a cost expert-prepared appraisal differ from a back-of-envelope rate?
- A cost expert-prepared appraisal benchmarks the cost line by element (substructure, frame, envelope, finishes, M&E, externals), against current quote data for comparable projects. A single £/m² rate hides which elements are tight and which are loose. Funders increasingly require the elemental breakdown.