14 May 2018
BCIS provides a ready source of data when establishing the replacement cost of a building for calculating a contractor's basis of valuation for rating purposes.
According to RICS' guidance note, The Contractor’s basis of valuation for rating purposes, the valuer needs to decide whether to base the replacement cost on the actual property or a substitute.
Where the replacement cost is based on the actual property, the guidance note suggests that the ‘costs can be achieved either by:
a) reference to unit costs derived from analysis of actual costs or
b) reference to the actual costs of providing the subject property or
c) in the absence of sufficient evidence from (a) and (b), reference to other appropriate and reliable sources of cost estimates.’
Using the appropriate indices
If costs are based on the recorded cost of the actual property, a) or b) above, BCIS indices for buildings, civil engineering and plant and machinery, etc. can be applied to update the costs. The older the cost information the less reliable this will be and care needs to be exercised to ensure that an appropriate index is applied.
The basis of the actual cost information needs to be considered, e.g. variation of price tender cost, firm price tender cost, design and build or final account figures, when choosing and applying indices.
In the case of c) above, BCIS average prices and analyses will provide a reliable source of unit cost information.
Similarly, if a modern, simpler or smaller substitute building is to form the basis of the replacement cost, BCIS average prices and analyses can be used.
The estimated costs reflect rebuilding as new and need to be adjusted to reflect any deficiencies in the actual property compared with the 'new' property.
RICS' guidance note contains detailed guidance for valuers.
A similar approach may be used to value a property under the RICS Valuation – Global Standards (Red Book), which identifies three cost approach methods to valuing unusual or very specialist properties that rarely come to market, and are generally unsuited to other, more common valuation techniques:
- replacement cost method: a method that indicates value by calculating the cost of a similar asset offering equivalent utility
- reproduction cost method: a method under the cost that indicates value by calculating the cost to recreating a replica of an asset and
- summation method: a method that calculates the value of an asset by the addition of the separate values of its component parts.
Again, these need to be adjusted for the state of the property being valued and are also sometimes referred to as Depreciated Replacement Cost (DRC) and Contractor’s Method of Valuation.
The BCIS average prices, cost analyses and building indices are published in BCIS Online.
The BCIS Civil Engineering Indices are published in the RICS Infrastructure Information Service.
The BCIS Plant and Machinery Indices are published in BCIS Plant and Equipment Indices
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