How you go about undertaking a condition-based Depreciated Replacement Cost (DRC) valuation for building assets can be a controversial topic amongst Councils and consultants throughout New Zealand and Australia. Considering this, we have recently produced a valuations webinar for IPWEA where we show how their Buildings.PLUS software (a lite version of the SPM Assets software) combined with asset management practices described in IPWEA’s Practice Note 3, can produce a DRC valuation and associated depreciation to a level that can pass a financial audit.
We have always advised our clients to use their component level data to produce valuations for ‘specialised buildings’ – what better way can a valuation be determined when actual low level evidence is used for remaining lives and total useful lives. Although these types of valuations can be undertaken by experienced asset managers, we advise clients to engage an experienced professional valuer to review the approach, policies, background data and resulting values. Using this combined approach will provide real cost savings. We do have many examples of Council’s taking this combined approach successfully.
The condition based DRC approach is common for most Council owned facilities – in many of our clients, 95% of their buildings are Specialised. These ‘specialised’ buildings are purpose-built assets that are likely to be never listed on the open property market unless Council policy and or District Plans are changed. Park amenity buildings, recreation centres, swimming pools, community halls, sports pavilions and public toilets are common examples.
Ideally, a market based valuation for non-specialised buildings should also be compared to a condition based DRC approach. This will clearly show the difference between the two so that Councils can correctly acknowledge depreciation shortfalls that will be produced. Where a market based valuation will be used as the Fair Value, the value and depreciation could be significantly less than a DRC approach. If the building is likely to be held for a long period of time, then Council may need to consider alternative funding in addition to depreciation alone.
Both SPM Assets software and IPWEA’s Buildings.PLUS tool will produce component level valuation information as an input to the valuation reporting process.
Click here to visit IPWEA's website where you can view the 10 minute webinar on ‘Valuation’