Valuation of Building: Methods and Calculation of Buildings | Civil Engineering Optional Notes for UPSC PDF Download

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Valuation of Building – Methods and 
Calculation of Valuation 
Valuation of building or property is the method of calculating the present marketable cost of a 
building. Valuation of a building depends on the sort of building, its structure, durability, 
location, size, shape, the width of roads, frontage, types and quality of building materials used 
and the cost of these materials. 
Valuation of a building also depends on the height of the plinth, height of the building, thickness 
of its walls, nature of structure (such as load bearing or framed structure), type of flooring, 
roofing, doors and windows etc. 
Location of a building also plays an important role in deciding the value of a building. For 
example, a building located in a market area would have a stronger and higher valuation than the 
same building located in a residential area. Also, the buildings located in areas with proper 
municipal water supply, sewer and electricity have increased values. A building located on a 
freehold land generates a higher valuation amount compared to a building located on the 
leasehold land. 
The valuation of a building also depends on the demands for purchase which varies from time to 
time. More demands make the building more valuable. 
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Valuation of Building – Methods and 
Calculation of Valuation 
Valuation of building or property is the method of calculating the present marketable cost of a 
building. Valuation of a building depends on the sort of building, its structure, durability, 
location, size, shape, the width of roads, frontage, types and quality of building materials used 
and the cost of these materials. 
Valuation of a building also depends on the height of the plinth, height of the building, thickness 
of its walls, nature of structure (such as load bearing or framed structure), type of flooring, 
roofing, doors and windows etc. 
Location of a building also plays an important role in deciding the value of a building. For 
example, a building located in a market area would have a stronger and higher valuation than the 
same building located in a residential area. Also, the buildings located in areas with proper 
municipal water supply, sewer and electricity have increased values. A building located on a 
freehold land generates a higher valuation amount compared to a building located on the 
leasehold land. 
The valuation of a building also depends on the demands for purchase which varies from time to 
time. More demands make the building more valuable. 
A building may provide income to the owner in the form of rent; thus valuation also depends on 
the income the building can generate if let out. If a building is not let out, then 6% of the capital 
cost of the building is considered as the annual rent. It varies from time to time and location and 
depends on the prevalent market rate. 
Valuation of Building 
Calculation of Valuation of Building or Property 
Age of property affects the valuation of the building, so the age of the property should be known 
from the records or by enquiries or from visual inspection and the future life of the building 
should be ascertained. 
The valuation of the building is calculated by finding the present-day cost of the building and 
allowing a suitable depreciation. The present-day cost of the building can be calculated by: 
1. Cost from the Record 
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Valuation of Building – Methods and 
Calculation of Valuation 
Valuation of building or property is the method of calculating the present marketable cost of a 
building. Valuation of a building depends on the sort of building, its structure, durability, 
location, size, shape, the width of roads, frontage, types and quality of building materials used 
and the cost of these materials. 
Valuation of a building also depends on the height of the plinth, height of the building, thickness 
of its walls, nature of structure (such as load bearing or framed structure), type of flooring, 
roofing, doors and windows etc. 
Location of a building also plays an important role in deciding the value of a building. For 
example, a building located in a market area would have a stronger and higher valuation than the 
same building located in a residential area. Also, the buildings located in areas with proper 
municipal water supply, sewer and electricity have increased values. A building located on a 
freehold land generates a higher valuation amount compared to a building located on the 
leasehold land. 
The valuation of a building also depends on the demands for purchase which varies from time to 
time. More demands make the building more valuable. 
A building may provide income to the owner in the form of rent; thus valuation also depends on 
the income the building can generate if let out. If a building is not let out, then 6% of the capital 
cost of the building is considered as the annual rent. It varies from time to time and location and 
depends on the prevalent market rate. 
Valuation of Building 
Calculation of Valuation of Building or Property 
Age of property affects the valuation of the building, so the age of the property should be known 
from the records or by enquiries or from visual inspection and the future life of the building 
should be ascertained. 
The valuation of the building is calculated by finding the present-day cost of the building and 
allowing a suitable depreciation. The present-day cost of the building can be calculated by: 
1. Cost from the Record 
The cost of construction can be determined from the estimations, the bill of quantities and using 
the present-day rate of building materials and labors. If the actual cost of construction of the 
building is known, this cost can be manipulated by using the percentage of increase or decrease 
to the present-day rate of materials and labors. 
2. Cost by Detailed Measurement 
If the old record is not available, then the cost of construction can be calculated by a detailed 
measurement of the building and preparing the bill of quantities of various items of works. The 
present rate of materials and labors are used to calculate the cost of the building. 
3. Cost by Plinth Area Method 
Plinth area method of calculating the cost of a building is simpler than the detailed measurement 
method which is laborious and lengthy. In this method, the plinth area of the building is 
measured and calculated and plinth-area rate of a similar building in the locality is obtained by 
enquiry and cost is calculated. 
The plinth area method may not be accurate if the building is not thoroughly examined and 
compared with the reference building of the locality. To fix this problem, different parts of the 
building such as foundation, structure, floor, roof, doors, windows, finishing etc. should be 
thoroughly examined. If the plinth area method is judiciously used, then the cost calculation will 
be precise and sufficient to suit practical purposes. 
Determination of Depreciation 
Depreciation is allowed to the current cost of the building to calculate the valuation of the 
building or the structure. Depreciation depends on the use of the building, age of the building and 
type of maintenance etc. generally, for the first 5 to 10 years, there is a very little depreciation of 
the building or the structure. The depreciation increases with the age of the building. 
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Valuation of Building – Methods and 
Calculation of Valuation 
Valuation of building or property is the method of calculating the present marketable cost of a 
building. Valuation of a building depends on the sort of building, its structure, durability, 
location, size, shape, the width of roads, frontage, types and quality of building materials used 
and the cost of these materials. 
Valuation of a building also depends on the height of the plinth, height of the building, thickness 
of its walls, nature of structure (such as load bearing or framed structure), type of flooring, 
roofing, doors and windows etc. 
Location of a building also plays an important role in deciding the value of a building. For 
example, a building located in a market area would have a stronger and higher valuation than the 
same building located in a residential area. Also, the buildings located in areas with proper 
municipal water supply, sewer and electricity have increased values. A building located on a 
freehold land generates a higher valuation amount compared to a building located on the 
leasehold land. 
The valuation of a building also depends on the demands for purchase which varies from time to 
time. More demands make the building more valuable. 
A building may provide income to the owner in the form of rent; thus valuation also depends on 
the income the building can generate if let out. If a building is not let out, then 6% of the capital 
cost of the building is considered as the annual rent. It varies from time to time and location and 
depends on the prevalent market rate. 
Valuation of Building 
Calculation of Valuation of Building or Property 
Age of property affects the valuation of the building, so the age of the property should be known 
from the records or by enquiries or from visual inspection and the future life of the building 
should be ascertained. 
The valuation of the building is calculated by finding the present-day cost of the building and 
allowing a suitable depreciation. The present-day cost of the building can be calculated by: 
1. Cost from the Record 
The cost of construction can be determined from the estimations, the bill of quantities and using 
the present-day rate of building materials and labors. If the actual cost of construction of the 
building is known, this cost can be manipulated by using the percentage of increase or decrease 
to the present-day rate of materials and labors. 
2. Cost by Detailed Measurement 
If the old record is not available, then the cost of construction can be calculated by a detailed 
measurement of the building and preparing the bill of quantities of various items of works. The 
present rate of materials and labors are used to calculate the cost of the building. 
3. Cost by Plinth Area Method 
Plinth area method of calculating the cost of a building is simpler than the detailed measurement 
method which is laborious and lengthy. In this method, the plinth area of the building is 
measured and calculated and plinth-area rate of a similar building in the locality is obtained by 
enquiry and cost is calculated. 
The plinth area method may not be accurate if the building is not thoroughly examined and 
compared with the reference building of the locality. To fix this problem, different parts of the 
building such as foundation, structure, floor, roof, doors, windows, finishing etc. should be 
thoroughly examined. If the plinth area method is judiciously used, then the cost calculation will 
be precise and sufficient to suit practical purposes. 
Determination of Depreciation 
Depreciation is allowed to the current cost of the building to calculate the valuation of the 
building or the structure. Depreciation depends on the use of the building, age of the building and 
type of maintenance etc. generally, for the first 5 to 10 years, there is a very little depreciation of 
the building or the structure. The depreciation increases with the age of the building. 
Consider a building with a life of 80 years, if well maintained, the following table shows the 
depreciation with the age of the building: 
Age of Building Depreciation per Year Total Depreciation 
0 to 5 years – Nil 
5 to 10 years @ 0.5% 2.5% 
10 to 20 years @ 0.75% 7.5% 
20 to 40 years @ 1 % 20 % 
4o to 80 years @ 1.5 % 60 % 
 
Total 90 % 
The final 10% is the scrap value on the dismantling at the end of the utility period. 
Methods of Valuation of Buildings and Properties 
Following are the different methods of valuations of the property: 
1. Rental Method of Valuation 
2. Direct comparison with capital value 
3. Valuation based on profit 
4. Valuation based on cost 
5. Development method of valuation 
6. Depreciation method of valuation 
1. Rental Method of valuation 
In this method, net income from the building is calculated by deducting all the outgoings from 
gross rent. Year’s purchase (Y.P.) value is calculated by assuming a suitable rate of interest