Depreciated replacement cost (coût de remplacement déprécié)

Depreciated replacement cost is the method I use when neither comparison nor income works: specialised properties that are rarely sold (a factory, a public facility, a technical building), recent buildings where the link between cost and value is direct, or markets with no transactions. The principle, stated by the Charte de l’expertise en évaluation immobilière (French property valuation charter), is that a buyer will not pay more than the cost of obtaining an equivalent property.

The Charter distinguishes the gross replacement cost, which comprises the price of the land and the cost of building the structures, including non-recoverable taxes, fees and charges, and the net (or depreciated) replacement cost, obtained by deducting from the gross cost a depreciation reflecting the age and obsolescence of the buildings.

Where the rule comes from

The definitions appear at Title III § 1.8 and § 1.9 of the Charter (6th edition, November 2025). § 2.5 describes the method: fields of application, limits (costs react more slowly than prices to cycles, and the method is not recommended where market data exists), cost elements (construction to current standards, fees, land value not depreciated) and the three forms of depreciation: physical deterioration, functional obsolescence, economic obsolescence. The European Valuation Standards 2025 deal with the cost approach in their methodology section.

In a valuation report

I first confirm with the client that the property will remain in use, because the method assumes the building continues to serve its purpose. I identify the appropriate modern equivalent (not necessarily a copy of the existing building), cost its construction, assess the remaining economic life and justify each depreciation. I add the land value, established by comparison. The report documents the assumptions in detail and, where possible, notes a cross-check with another approach.

Example

An industrial workshop of 1,800 m² built in 2005 on a 6,000 m² site, with no comparable transaction in the area. Cost of building a modern equivalent: €750 per m², or €1,350,000, plus 10 % fees, giving €1,485,000. Physical deterioration: 20 years out of an economic life of 50 years, or 40 %. Functional obsolescence (insufficient ceiling height): a further 10 %. Depreciated value of the buildings: 1,485,000 × 0.60 × 0.90 = €802,000 rounded. Land by comparison: 6,000 m² at €35, or €210,000. Depreciated replacement cost: €1,012,000.

Not to be confused with

Reinstatement value rebuilds the property as it is, without land and without depreciation; it serves mainly for insurance. Market value remains the reference whenever a market exists.