Tag Archives: Replacement Cost

CHALLENGES OF USING THE COST METHOD OF VALUATION IN VALUATION PRACTICE: A CASE STUDY OF SELECTED RESIDENTIAL AND COMMERCIAL PROPERTIES IN AWKA AND ONITSHA, ANAMBRA STATE, NIGERIA (Published)

By Definition, the cost method also known as the Depreciated Replacement Cost (DRC) method of valuation is a method of determining the value of a property or an asset by reference to the cost of replacing the property or asset as new, and then making allowance for depreciation to take care of age, wear and tear and other forms of obsolescence (Ifediora, 1993). In valuation practice, it is usually adopted where there is a lack of data for income method or where the property is new and there is no sufficient evidence of recent property transactions in the open market. The DRC method from the professional view point however relies on a good knowledge of construction costs or unit rates of construction as regards landed property or assets generally. This can pose serious challenges where relevant data is not available. It could in turn result to assumptions which are indefensible in a court of law.

Keywords: Construction Rate, Depreciation, Replacement Cost, Valuation