8 - DRC Method of Valuation Flashcards
Also known as the contractors method, what is DCR and when should it be used?
Depreciated Replacement Cost. Only when market evidence is limited or unavailable for a specialised property e.g. school
What is the purpose of a DRC?
- Used for owner-occupied property
- For accounts purposes of specialised proeprty
- Rating valuations of specialised proeprty
What is the methodology of a DRC?
Two steps:
1) Value of land in existing use (assume planning)
2) Add current cost of replacing the building plus fees, less a discount for depreciation and obsolescene/deterioration (Use BCIS and then judge obsolescence)
What are the different types of obsolescence?
1) Physical obsolescence is the result of deterioration/wear and tear over the years
2) Functional obsolesence is where the design or specification of the asset no longer fulfils the function for what is was dsigned
3) Economic obsolescence is due to the changing market conditions for the use of the asset
Is the DRC method suitable for secured lending purposes according the the Red Book Global 2024?
No
Is there any RICS guidance surrounding the DRC method?
Yes - Professional Standard: Depreciated replacement cost method of valuation for financial reporting.
What must a valuer include when reporting a DRC valuation?
State the value for any readily identifiable alternative use if it is higher than the current use if appropriate. If appropriate, a statement that the market value would be lower on cessation of the business use.
