# Below market value is not the same as a discount

> A property bought 20% below market value is not bought at a 20% discount. True discount measures every pound deployed — purchase price, transfer tax, finance, works, holding and selling costs — against open market value. On an ordinary refurbishment purchase the two figures differ by most of the margin, and the true one is frequently negative.

- Source: https://www.lodeprop.com/blog/true-discount-versus-below-market-value
- Topic: Deal analysis
- Published: 2026-08-01
- Updated: 2026-08-01
- Figures: computed from a worked example

Below-market-value is the most quoted number in property sourcing and the least useful one. It measures the gap between what you paid and what the property is worth, and stops there — as though buying were the only thing that costs money.

## What does true discount actually count?

Everything that leaves the bank account before the property can be sold again. Transfer tax at whatever rate the buyer's circumstances attract. Legal fees on the purchase and again on the sale. A survey. Finance arrangement fees, interest across the hold, and an exit fee where the facility has one. The works themselves, and a contingency against the works being wrong. Council tax, insurance and utilities across the void. Selling costs at the end.

None of that is exotic and none of it is avoidable. It is the ordinary cost of transacting, and the reason a headline discount and a true discount diverge is not that something was hidden — it is that the headline was never measuring the same thing.

## A worked example, computed rather than asserted

Take a three-bedroom freehold house in Erdington worth £212,000, bought by a company at £170,000 with £34,000 of works and a nine-month hold. The headline discount is 19.8%. The figures below come from the same appraisal engine that produces the Deal Room, on the same inputs.

### The same purchase, counted two ways

| | |
| --- | --- |
| Headline discount to open market value | 19.8% |
| Total money actually deployed | £222,860 |
| True discount to value | -5.1% |
| Profit after tax on a sale | £46,303 |

The gap between those first and third rows is the entire subject. It is stamp duty at the company rate, legal fees, a survey, holding costs across the works, selling costs at the end, and a contingency — every one of them ordinary, and together large enough to move the answer from comfortable to marginal.

## Why the gap widens on the deals you are least sure about

On an obviously good purchase the difference is academic: a property bought at half its value survives any amount of transaction cost. On a marginal one it decides the outcome, and marginal deals are where the decision is actually being made. Nobody needs an appraisal to reject a bad deal or accept a spectacular one.

The failure mode is specific and it is common. A true discount that comes out negative means more has been deployed than the property is worth, and the headline number will still be reassuring — 20% below market, on a spreadsheet, next to a loss. That is not a rare edge case on properties needing significant work; it is the base case, which is why the works estimate carries a contingency and why the contingency is charged rather than noted.

## How does finance change the figure?

Materially, and in both directions. Debt reduces the cash deployed, which improves the return on cash while leaving true discount to value roughly where it was — the money is still spent, it is simply somebody else's. What debt adds is cost: an arrangement fee, interest across the hold, often an exit fee, and the lender's own legal costs charged to the borrower.

Where interest is retained rather than serviced, the net advance is smaller than the facility, and a model that treats the facility as cash arriving on completion is wrong by the whole of the retained interest. The capital stack has to be costed at what it releases, not at what it says on the offer.

## What to do with the number

- Compute it before you negotiate, not after. It sets the walk-away price, and a walk-away price computed in the room is a preference rather than a limit.
- Charge the contingency into the deployed figure. A contingency held outside the total is a contingency you will spend and never account for.
- Recompute it after any change to the works estimate. The works are the input with the widest error bar and the largest effect.
- Compare it against local evidence rather than against the asking price. Price Paid Data records what actually completed, which is the only figure that has been tested by a buyer.

A number computed this way is duller than a headline discount and it is the one that survives contact with a completion statement. That is the whole argument for it.

## Common questions

### What is included in true discount?

Every pound deployed: purchase price, transfer tax, legal and survey fees, finance arrangement and interest, holding costs, selling costs and contingency, measured against open market value.

### Can true discount be negative?

Yes, and it frequently is on a property bought visibly below market. A negative figure means the total deployed exceeds the property's open market value — you have paid more than it is worth, by the only measure that counts.

### Is true discount the same as margin?

No. True discount compares money deployed against the property's current value. Margin compares profit against the finished value after the works. A deal can show a healthy margin and a poor true discount, and the second is the one that tells you what happens if the works do not go to plan.

### Does it apply to a buy-to-let purchase?

It applies to any purchase, but it matters most where there are works. On a tenanted purchase with no refurbishment the two figures are close, because the transaction costs are the only difference between them.

## Terms used

- [true discount](https://www.lodeprop.com/glossary/true-discount) — Total money deployed measured against open market value, rather than the headline discount on the purchase price.
- [Price Paid Data](https://www.lodeprop.com/glossary/price-paid-data) — Every registered property sale in England and Wales since 1995, published free under the Open Government Licence.
- [capital stack](https://www.lodeprop.com/glossary/capital-stack) — Every source of money in a purchase, ordered by who is repaid first and what each layer costs.
- [net advance](https://www.lodeprop.com/glossary/net-advance) — The cash a lender actually releases at drawdown, after arrangement fees and any interest retained up front.
- [retained interest](https://www.lodeprop.com/glossary/retained-interest) — Interest deducted at drawdown for the whole term rather than paid monthly, which reduces the cash released.

## Sources

- [Stamp Duty Land Tax rates](https://www.gov.uk) — HM Revenue & Customs (publisher's site; search the title there). The bands and rates in force, and the reliefs that alter them.
- [Higher rates for additional dwellings](https://www.gov.uk) — HM Revenue & Customs (publisher's site; search the title there). The surcharge on a second residential property, and that a company pays it from the first pound.
- [Corporation Tax rates and reliefs](https://www.gov.uk) — HM Revenue & Customs (publisher's site; search the title there). The main rate, the small profits rate and marginal relief between them.
- [Price Paid Data](https://landregistry.data.gov.uk) — HM Land Registry (publisher's site; search the title there). Every registered residential sale in England and Wales since 1995.

## Related

- [Net advance: what a bridging facility really releases](https://www.lodeprop.com/blog/what-a-bridging-facility-releases-on-day-one) — A facility is not a cash sum. Where interest is retained it is deducted at drawdown, so the net advance is smaller than the headline. A capital stack…
- [Red Team stress testing: finding the fragile deal](https://www.lodeprop.com/blog/red-team-stress-testing-a-property-deal) — Nine scenarios move the value, the works, the rate and the timeline — one at a time, then together. Only single-factor losses cap the score, because a deal…
- [What open property data shows before a listing](https://www.lodeprop.com/blog/what-open-property-data-tells-you-before-a-listing) — Price Paid Data and the EPC register are free, official and quietly revealing. Together they show which properties were prepared for sale and never sold.
- [When a deal pack becomes a financial promotion](https://www.lodeprop.com/blog/why-a-deal-pack-is-a-financial-promotion) — Direct property purchase sits outside the perimeter. Package it, share it, or publish a return, and the same pack becomes something only an authorised person…

_Worked example computed by the Lode appraisal engine._