„The proposition of evaluating the technical conditions and depreciation of a property is mainly associated with civil and commercial trial as a result of a conflict between the buyer (so called ‘factotum’) and the constructer.“  

Evaluating the technical conditions value representing the building depreciation.

Abstract

The proposition of evaluating the technical conditions and depreciation of a building is mainly associated with civil and commercial trial as a result of a conflict between the buyer (so called ‘factotum’) and the constructer of the building. Complexity of such a calculation may vary and mostly depends on exact elaboration of records and documentation defining the subject of a contract; and on the method used for appraising the delivery of building operations.

When evaluating technical conditions and building deprecation the expert – appraiser may encounter different facts affecting the choice of unique techniques and methods that shall define the final objectivised building wear in a clear and above all viewable way.

Introduction

Determination of building site price is done in different ways based on different aspects. One of these aspects represents the costs necessary for building the site. If these costs are set on the date of building finalization, they are the purchase costs – start value. If they are set on the date of appraisal, they deliver the technical value (reduced by depreciation, the time price).

Construction Persistence

Basic terms:

• Construction persistence (Z) – implies total expected lifetime at current maintenance between its creation and entire dissolution. Expressed in years. Construction lifetime is determined by a surveyor with respect to its constructional and material solution, technical conditions, means and intensity of usage and maintenance.

Writings and transcriptions may contain the following terms:

-     Expected lifetime, total expected lifetime, technical lifetime, technical duration of building site, probable persistence (duration) of the building, building duration, building life length; these terms are identical in meaning to persistence;

-     Residential persistence - period of residual technical duration between the date of evaluation and the complete decay of the construction, again assuming standard maintenance;

-     Objective construction persistence – the term is used for methods based son so called basic duration time of a certain construction type and further criteria (impact of maintenance, intensity of usage, outer influence and other) modifying the basic duration;

-     Economic lifetime - the period between creation and economic dissolution. It is usually shorter than technical duration. In countries that adopted the free market economy the date of economic dissolution approaches when it is more profitable to liquidate the building site and build a new, more profitable one. Another criterion can be the amount of permanent repair costs compared to the revenue of the property. For single-purpose business premises their economic lifetime terminates when the building site dissolves in given space and time.

• Residual persistence of a construction (T) – residual persistence of a building determined by a surveyor by the year of appraisal.


• Construction age (V) – computed as the difference between the year of appraisal and the year the voice of house inspection came into effect. In cases the building site had been taken in use before, age is computed as difference between the year of appraisal and the year the building site usage provably started. If this is not possible, another record is considered, else we use a justified educated guess.


• Construction wear (O) – (sometimes referred to as depreciation, however not incident to the amortisation and depreciation rates, formerly known as decrepitude and debasement etc.) matches technical state depreciation in dependence on age, expected persistence means of usage, maintenance and other. Rates are in units per cent.

The following relation can be used for determining the construction persistence:

where

• Z – persistence of a structure [year],
• V – age of a structure [year],
• T – residual persistence [year].

Construction elements life

A construction consists of multiple elements with a different life expectation. Based on life expectation we distinguish following groups in this methodology:

• long-life components,
• short-life components.

• basement,
• vertical carrying constructions,
• horizontal carrying constructions,
• staircase,
• frameworks.

Short-life components – technical building elements that involve at least one renewal during the construction lifetime. Some are included in the construction’s accessories and facility.

From the point of technical engineering it is obvious, which conditions will be remarkably influencing the construction persistence. These are:

• construction setting in given basement conditions;
• constructional solution blueprint, technological execution of long-life blocks (elements that are not meant to be renewed over the entire construction lifetime – basements, vertical carrying constructions, ceiling, frameworks, possibly staircases);
• means and intensity of construction’s usage;
• execution of running (preclusive) maintenance;
• from the technical as well as economic aspect the influence of running modernisation cannot be neglected; these mostly take place upon grand or capital repairs of the whole construction

Building depreciation

Usage and aging of a building are gradually changing (worsening) its use properties, to what is mostly referred as ‘building depreciation’.

Depreciation is evaluated in form of per cent ratio and reflects the impairment of a technical state correlated to age, expected persistence, usage means, maintenance etc.

Calculation of building deprecation:

a) via linear method,
b) via analytic method.

Depreciation of an incomplete building site is qualified guess-estimated by a surveyor.

Value expressing depreciation (HO) is calculated as an aggregated sum of partial values of particular building components according to the formula:

where

• Oi – depreciation of the i-th building component [%],
• VHi – start value of the i-th building component [Sk] (since 2009 [EUR]),
• n – number of building components [–].
  

Linear method of depreciation calculation

Linear method is based on an assumption that building wear rise is directly proportional to building’s age, from zero upon new build to 100% for buildings at the end of their lifetime.

Analytical method of depreciation calculation

Total building depreciation via linear method can be calculated as a valued arithmetic mean of individual building component depreciations, where the values express the metric unit used in calculation of the start value.

The substance of analytical method is the construction partition onto particular constructional units following their value (so called volume) share to whole building ratio. Each component depreciation is estimated separately, final depreciation rate is given by valued arithmetic mean for the entire construction. Values are the particular component shares on the whole building.

,

• Oi – depreciation of the i-th building component [%],
• VHi – start value of the i-th building component [Sk] (since 2009 [EUR]),
• n – number of building components [–].

Example – depreciation calculation via analytical method

Let’s apply data from the former example “persistence calculation via method of Bradáč“:

Construction age                     V = 2003 – 1933 = 70 years
Construction persistence          Z = 120 years,
The building – a single family house underwent reconstruction in 2001.

(Value shares adopted from technical & economic measures assembled at the Institute for authorized expertise, Bratislava).

Calculation digested in the following table no. 1:

Conclusion

Calculation of technical state and value of building depreciation is a very effort demanding and complex process, when the expert – appraiser has to abide, carefully consider and analyze agreed adjudicative facts granted parties qualitatively varying in some cases. Of course they must not lapse in merely doing a juristic analysis not belonging to them, but from all actual records only select those parts dedicated to technical state of pricing.

It could be said that, when solving such an expert problem practically, each appraised proposition might be a specific one, demanding individual examination of facts in terms of exactly defined tasks in resolutions of state organs and with respect to records requiring entertaining. Therefore, it cannot be explicitly said there does exist an universal manual for conducting surveyor’s expertise in this field.

Literature

• Regulation of the Slovak Republic Ministry of Justice no. 492/2002 Col. of assessment on generic value of property.
• STN 73 4055 Calculation of build-up premises of structural building objects: 1962.
• Nič, M. – Majdúch D. – Nagy, J. – Gregušová, S. – Púchovský, B.: Catalogue of budgetary measures & Assessment methodology for generic value of property. STU in Bratislava, Faculty of Civil engineering, Institute for authorized expertise 2004, ISBN 80-227-2028-3.
• Measure of Slovak statistical bureau no. 128/2000 z 3.4.2000, testifying the Classification of constructions.