1. Contractor / Cost Approach to Valuation
Introduction:
- Used this method where properties rarely change hands such as church , school, libraries and etc.
- This method determines the capital value of a property by relating its value as a whole to the value of constituent parts – l and building cost.
- Also called as the Depreciated Replacement Cost (DRC) basis
- This method of estimating the replacement costs of the building and adding to them the value of the land
- Method:
Value of the Site ( direct capital comparison)
Plus Cost of Building
Equals Total Value of Property
Less Depreciation for Deterioration and Obsolescence
Equals Value of Existing Property

2. Contractor / Cost Approach to Valuation
Value of Site:
The DRC basis requires the valuer first to assess the market value of
the land in its existing use. This is often difficult to do due to the
specialist nature of the land use. The bets approach is to value a notional replacement site in the locality reflecting its likely planning permission.
Cost of Building:
Effort to obtain the construction cost as accurate as possible by referring to the reliable resource for rate.
Deterioration :
all building deteriorate from physical use and weather. In carrying the DRC valuation it is assumed that the value of the existing building will be less a new replacement because of physical deterioration. Reflecting this in the valuation is best done by considering the expected design life and reducing the cost in proportion to the age/remaining life.
Obsolescence:
Obsolescence can be considered under three headings:
Economic Obsolescence : arising from the changes in economic factors e.g. fuel cost, exchange rates, subsidies
Functional Obsolescence : technical advance
Environmental factors : in relation o the surrounding area and local and national planning policies

3. Contractor / Cost Approach to Valuation
Alternative Use:
The property or site would have a different value for an alternative use and planning permission is likely to be granted for that use then Alternative Value should also be provided for client’s information. This is often the case when the property may have significant development potential.
7. Example : please refer to the given notes for detail