Book value Method

 In Book Value Method, historic cost of the asset in the year of acquisition is taken as basis and with the help of cost index figures (Multiplying factors for different years, indicating price rise in the market due to inflation and other factors like variation in cost of materials and labour), replacement costs and value of the asset are determined for the relevant year of valuation.

Out of several methods of cost estimation, book value method is simplest. In book value method, it is very essential to have correct and reliable Historic Cost of the building. Some owners do not maintain proper books of account. Records of historic cost of the buildings are also not very clear because phase wise, year wise and building wise building costs are not indicated separately but are all clubbed together in to one single figure.

This method, however, is very much useful to arrive at present day cost of special type of structures like Air-craft Hangers, Customised factory buildings – designed for special industrial requirements, ornamental structures or public utility buildings whose Historical Cost is known.

Sometimes some factories have special design criteria with heavy design load consideration with long spans and excessive height. In such cases, working out replacement cost from quantity survey method is difficult due to want of actual structural design drawings. In such case this method is very useful. This method is also useful to cross check replacement cost arrived at by other cost estimation methods.

Flat Rate Method:

Flat Rate Method involves estimating the building cost on the basis of unit rate of building area or volume and adopting flat rate of similar construction. The unit of the area of the building, could be net carpet area basis or total builtup floor area basis. It could also be based on the volume of construction.

Total Carpet Area of building = 500 smt Total Built up area of building = 650 smt Total Cubic content of building = 2000 cum

Cost of construction can be estimated by adopting flat rate method by adopting any one of the above three units as the base of estimation. Result will be same as under.

Carpet area rate say Rs.10,000/smt

Cost = 500 smt @ Rs.10,000= Rs.50,00,000/-

Builtup area flat rate of Rs.7,700/smt

Cost= 650 smt @Rs.7,700 = Rs.50,05,000/-

Volume content rate Rs.2,500/cum

Cost = 2000 cum @ Rs2,500= Rs.50,00,000/-

The important aspect in considering and adopting this flat rate is the correctness of basic rates of construction cost, which has to be duly modified to arrive at flat rate applicable to the building under valuation. The basic rate of construction cost can be derived from valuers own data bank and compilations or the rate could be collected from local Contractors or Architects by making inquiries.

Not only specification of the building but the locality of the building is also equally important in fixing flat rate. Before finally adopting flat rate, the valuer has to modify basic rate after considering several factors of variation. The basic rate under data bank may have some fixed specifications and standard design. The building to be valued may have superior or inferior specification which will call for suitable adjustment in the basic flat rate.

Adjustment is also required for other factors like shape and design of the building. The building to be valued may have several offsets or having curved shape, which will involve extra cost than rectangular shaped building.

Adjustment may also be necessary for design and elevation aspects. The building with heavy architectural features would cost more than the standard type of design.

Floor placements are also required to be considered. Only ground floor building would have much higher flat rate of cost as compared to the rate of cost for two or three storied building.

Floor Height variation also requires adjustment in flat rate.

If separate Data Bank of cost is not maintained for residence and factory building, the valuer will have to make adjustment for the user of the building also.

Factory building do not have small size rooms like residential building. Number of partition walls are very few and doors and windows are also less. Plumbing cost is also much less in factory building. Building height is more for factory building. All these calls for adjustment in basic rate, if it is for residential building.

Cost Index Method

 This method is mainly devised and adopted by Central P.W.D. Engineers, for working out quickly, the cost estimates of a building proposed to be constructed by the Central Government, in different parts of the country. These block estimates are not very precise and the same are prepared only for the purpose of obtaining administrative approval of the project and for budgetary sanctions of the project. For tendering and actual execution of the building, detailed quantities of the building are worked out and fairly accurate estimates are prepared.

In cost index method, for the preparation of the basic Cost Index as well as subsequent Cost Indices following procedure is adopted.

First one base year is selected. Then standard building design as per government norms is selected. Detailed quantity of said building is worked out as per standard Government specification. The cost per unit area rate for the said building is worked out for said building,for the said base year,as per the rates of various building items prevalent at that time in Delhi. This rate is taken as the base rate of the building, for the said base year having Cost Index of 100. Say for base year 1-1-1992,with Cost Index 100, building cost for an R.C.C. framed building is fixed at Rs.2810/smt for residential building up to 6 storeys, for the Delhi city. This rate is arrived at by adopting prevalent rate of building materials and labour in Delhi City, in the year 1-1-1992. Similarly for different base years building flat rates are worked out.

Building cost for the residential building in Delhi, as per 1-1-1992 cost index as 100, was Rs.2810/smt. Now if Cost Index of Mumbai in 2005 was 250 as compared to 1992 base index 100, Building cost for residential house in Mumbai, in year 2005

= 2810 x 2.50 = Rs.7025/smt

Though this method prima facie appears to be absurd, it does give some idea of comparable costs, in different years, in different areas, because basis adopted is building material rates and labour rates in different areas during different period.

Detailed Quantity Method

This is most reliable and accurate method of valuation for cost estimation purpose for a building. This is therefore most favourable method of Courts also.

  • In this method, detailed quantities of all civil work items, carried out in the completed building, are worked
  • Then prevalent rates of such civil works items, as quoted in market in year of valuation,are These details will give correct cost estimate of the building.
  • Normally current scheduled rates of P.W.D. of the concerned locality, for relevant year of valuation, are adopted. However some valuers adopt C.P.W.D. scheduled rates and some valuers adopt quoted or tendered rates of civil work contractors for the concerned year for construction works in private sector. Any one of these rates can be adopted, provided, the valuer is able to prove and justify that said rates did prevail in the market, in the concerned locality, at the relevant period of time. Valuer can also prove correctness of these rates by independently deriving item rate working, from Rate Analysis of particular civil work items which would be based on the prevalent rates of the building materials and labour rate, in the locality, in the relevant year.

Reinstatement Method

 This method of estimating cost is similar to Detailed Quantity Method of cost estimating, with a difference that depreciation is not deducted from reproduction cost. As stated earlier this is normally used while filing claim under Land Acquisition act for the non- marketable properties like Temple, Masjid etc.

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