1. Cost Method

2. Replacement Cost Method Used to value specialised properties that are seldom sold –Manufacturing: Chemical works Oil refineries –Public administration Schools and colleges Town halls, courts and prisons Hospitals, art galleries –Infrastructure Airports Railway buildings Valuations required for company accounts business rates insurance (known as reinstatement valuations)

3. Replacement Cost Method Assumes that the value of existing property = the cost of providing an alternative similar property Must allow for depreciation (due to age and obsolescence) Method calculates replacement cost rather than market value Method: Cost of new building Less allowance for depreciation Plus value of land (not included if valuation is for insurance purposes) Equals value of property Several methods of calculating depreciation allowance Straight line Reducing balance Sinking fund

4. Replacement Cost Method: Valuation for accounts A purpose-built industrial property with an estimated life of 90 years with 16 years remaining has a GIA of 2,500 m2 and a site area of 0.8 hectares. The current value of this property needs to be estimated for inclusion in the company accounts. Land0.8ha @ £200,000[1] per ha[1] £160,000 Buildingmodern replacement cost including fees[2][2] £300 / m 2 £750,000 Lessdepreciation @ 74/90 years = 82% (£615,00 0) £135,000 Estimated depreciated replacement cost £295,000 [1] Figure obtained from comparable evidence of land sales [2] An overall figure or prices of component parts may be used

5. Replacement Cost Method: Valuation for insurance Also known as reinstatement valuations, provides for a similar property as at the date of the valuation or at the commencement of insurance policy cover, should be carried out at least every three years Building cost[1] (£/sqm)[1]1,250 Building area[2] (m)[2]500 625,000 Less obsolescence[3] allowance (% bldg cost)[3]25%(156,250) Less depreciation[4] allowance (% bldg cost)[4]15%(93,750) Insurance valuation of existing property375,000 [1] Building costs can be broken down into component parts and based on a Quantity Surveyor’s bill of quantities [2] Building area can also be broken down [3] Obsolescence may affect different parts of building at different rates [4] Depreciation also can vary according to type of structure

6. Replacement Cost Method: Valuation for rating Method produces a capital value which must be ‘de-capitalised’ at an appropriate yield (usually between 3 – 6%) to find a rental value Example valuation of an old hospital building… Current cost of erecting a modern equivalent) £ 250 m Less: Allowance for age and obsolescence of Existing building (as a % age) say 60% -£ 150 m Add: value of site on which building stands +£ 3.5 m Effective Capital Value (ECV) of existing building£103.5m Converted to annual (rental) equivalent multiply by say 6%£6.21 m