Valuation of building

Valuation of a building depends on many factors like the type of the building, its structure and durability, on the situation, size, shape, frontage, width of roadways, the quality of materials used in the construction and present day prices of materials. This also depends on the height of the building, height of the plinth, thickness of wall, nature of floor, roof, doors and windows. Furthermore the valuation of building mainly depends on the income it will fetch if let out. So usually 6% interest per annum of the capital cost is taken as annual rent it may be more or less according to the prevalent market rate.

How to calculate the value of a building
Valuation of a building

Hence the present day cost may be determined by the following methods.

Cost from record

Likewise cost of construction may be determined from the estimate of quantities and from record at present day rate. Therefore if the actual cost of construction increase or decrease according to the percentage rise or fall in the rates which may be the PWD schedule of rates.

Cost by detailed measurement

Similarly if record is not available the cost of construction may be calculated by preparing the bill of quantities of various items of work by detailed measurement at the site and taking the rate of each item as prevalent in the locality or as current PWD schedule of rates. Finally all the items of words should be thoroughly scrutinized and the detailed specifications ascertained as actually exist.

Cost by plinth area basis

Determination of cost by detailed measurements and bill of quantities is lengthy therefore a simple method is to calculate the cost on plinth area basis. The plinth area of the building as measured and the present day plinth area rate of a similar building in the locality is obtained and then cost is calculated. While the cost may be calculated by cubical content method.

Determination of depreciation

So after deciding the cost of the structure by any one of the above method it is necessary to allow a suitable depreciation on the cost and the depreciation depends on the ultimate use of the building, the age of the building, Nature of maintenance etc. Generally for the first 5 to 10 years there is little depreciation of the structure and depreciation increase with the life.

For a building whose life is considered as 80 years, if well maintained the following may be reasonable depreciation

PeriodDepreciation per yearTotal depreciation
0 to 5 yearsnil0
5 to 10 years@ 1/2 percent2.5 percent
10 to 20 years@ 3/4 percent7.5 percent
20 to 40 years@ 1 percent20.0 percent
40 to 80 years@ 1.5 percent60.0 percent
Total90.0 percent

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