What to take into your next appraisal
- Reconcile units before multiplying by prices.
- Apply discounts to the correct sales cohort.
- Carry unsold and unsettled inventory through the exit.
Choose the inventory states
At minimum, distinguish available, reserved, contracted, completed and settled units. Not every project needs five independent stages, but every unit must have a clear status and transition date. An available-inventory roll-forward differs from an unsettled-inventory roll-forward because a contract reduces one while leaving the other unchanged.
RICS development guidance recognises phasing and timing within development cashflows. The model here turns those assumptions into unit movements. The numerical rates and prices are illustrative, not an estimate of sales demand.
Reconcile a three-month sales campaign
Start with 20 available units. In month one, six new contracts leave 14 available. Month two adds five contracts but one earlier buyer cancels, leaving ten available. Month three adds four contracts, leaving six available. Net contracted inventory is therefore 14 units.
The formula is closing available = opening available − new contracts + cancellations returned to stock. A cancelled unit that cannot immediately be remarketed needs its own held-status category instead of being automatically returned to available stock.
| Month | Opening available | New contracts | Cancellations returned | Closing available |
|---|---|---|---|---|
| 1 | 20 | 6 | 0 | 14 |
| 2 | 14 | 5 | 1 | 10 |
| 3 | 10 | 4 | 0 | 6 |
Apply price changes to the retained contracts
Assume month-one contracts are 400,000 each, month-two contracts receive a 2% discount to 392,000, and month-three contracts receive a 3% discount to 388,000. With one month-one cancellation, retained contracted value is 5 × 400,000 + 5 × 392,000 + 4 × 388,000 = 5.512 million.
Average contracted price is approximately 393,714.29 across 14 units. Applying the latest 3% discount to every historical contract would understate contracted value. Changing a list price should affect future sales unless the existing contracts themselves are renegotiated.
Convert contracts into dated receipts
Under a hypothetical 10% deposit and 90% settlement structure, retained contracted deposits total 551,200 and future settlement balances total 4,960,800. If the cancelled buyer already paid 40,000, separately model its refund or other treatment under the verified agreement. The retained-deposit calculation is not the complete bank movement history.
Assign a settlement month to each cohort, constrained by both building completion and buyer readiness. Add sales commissions, incentives, taxes and any debt release amount at their actual payment dates. Restricted deposits need a separate release schedule before they can fund construction.
Value the stock that remains
The six uncontracted units remain an exposure. Specify their future sale pace, price, holding costs and marketing spend rather than distributing the contracted revenue and forgetting the remaining stock. Test a slower absorption case and a lower-price case separately, then combine them where commercially plausible.
Useful checks include total units never becoming negative, settled units never exceeding eligible completed contracts and every sale appearing once in both the revenue and cash schedules. A project-wide revenue subtotal should reconcile to the unit register, not overwrite it.
Sources and further reading
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