Determination of physical wear and tear of the assessed object. Determining the depreciation of a property - abstract. An example of calculating external wear for an egg poultry farm
Breakdown method consists in a detailed consideration and accounting of all types of wear, which include (Fig. 2):
- removable and irreparable physical wear and tear;
- removable and irreparable functional wear;
- external wear.
Irremovable (irreparable) wear is wear, the elimination of which is either physically impossible or economically impractical, i.e. the costs incurred to eliminate one or another type of wear and tear do not contribute to increasing the value of the object as a whole.
Rice. 4 Classification of depreciation of real estate objects
To apply the breakdown method when determining accumulated wear and tear, it is necessary to have data on the cost of new construction, broken down by structural elements, as a calculation base.
Physical deterioration– gradual loss of the technical and operational qualities of the object originally laid down during construction under the influence of natural and climatic factors, as well as human activity. Physical deterioration reflects changes in the physical properties of a property over time (for example, defects in structural elements).
There are four main methods for calculating physical depreciation:
- expert (normative);
- cost;
- method for calculating the life of a building.
This method involves the use of various regulatory instructions at the intersectoral or departmental level. An example is VSN 53-86, used by the technical inventory bureau to assess the physical deterioration of residential buildings during technical inventory and planning major repairs of the housing stock, regardless of its departmental affiliation. These rules describe the physical wear and tear of various structural elements of buildings and their assessment.
The physical wear and tear of a building is determined as follows:
F f – physical wear and tear of the building, (%);
F i – physical wear of the i-th structural element (%);
L i – coefficient corresponding to the share of the replacement cost of the i-th structural element (section) in the total cost of the building;
n – number of structural elements in the building
The shares of the replacement cost of individual structures, elements and systems in the total replacement cost of the building should be taken according to aggregated indicators of the replacement cost of residential buildings, approved in the prescribed manner, and for structures, elements and systems that do not have approved indicators - according to their estimated cost.
Example 30. Determine the physical wear and tear of a residential building if it is known that its inspection revealed physical wear and tear of all structural elements:
- foundations – 10%;
- walls – 15%;
- overlaps – 20%;
- roofing – 10%;
- floors – 35%;
- windows – 40%;
- finishing coatings – 30%;
- internal plumbing and electrical installations – 50%;
- others – 25%.
1. Let us determine the specific gravity of structural elements in accordance with Sat. No. 28 UPVS.
2. Results of assessing the physical wear and tear of elements and systems, as well as determining their share in terms of replacement cost:
Name of building elements | Specific gravity of structural elements, % | Specific gravity x wear percentage |
|
| foundations | |||
| walls | |||
| floors | |||
| roof | |||
| floors | |||
| window | |||
| finishing coatings | |||
| interior plumbing and electrical installations | |||
| other | |||
| - |
Thus, the physical wear and tear of the building is 23.25%
Cost method for calculating physical wear and tear is based on the assumption that physical deterioration at the time of assessment is expressed by the ratio of the cost of objectively necessary repair measures to eliminate damage to the structure, element or building as a whole, and their replacement cost.
Example 31. Determine the physical wear and tear of a residential building if it is known that the replacement cost of structural elements and the objectively necessary costs for their repair are respectively: foundations - 3,200 thousand rubles, 640 thousand rubles; walls – 4,000 thousand rubles, 1,200 thousand rubles; ceilings - 800 thousand rubles, 160 thousand rubles; other – 8,000 thousand rubles, 2,800 thousand rubles.
Let's determine the amount of physical wear and tear. The results of assessing the physical wear of elements, as well as determining their specific weight at replacement cost:
Name of building elements | Replacement cost of the element, thousand rubles. | Objectively necessary repair costs, thousand rubles. | |
| foundations | |||
| walls | |||
| floors | |||
| other | |||
Thus, the physical wear and tear of the building is 30%
This method allows you to immediately calculate the wear and tear of elements and the building as a whole in cost terms. Since the impairment calculation is based on the reasonable actual costs of bringing worn-out items to “substantially new condition,” the result of this approach can be considered fairly accurate. The disadvantages of the method are the required detail and accuracy in calculating the costs of repairing worn-out building elements.
Method for calculating the life of a building is based on the assumption that the relationship between physical depreciation (PH) and replacement cost (RC) is determined by the ratio between effective age (EA) and typical economic life (EF):
Example 32. Determine the physical wear and tear of a residential building if it is known that the replacement cost, actual age and total physical life of its structural elements are respectively: foundations - 1,200 thousand rubles, 10 years, 15 years; walls – 400 thousand rubles, 5 years, 10 years; ceilings – 300 thousand rubles, 6 years, 15 years; others – 900 thousand rubles, 1 year, 10 years.
Let's determine the amount of physical wear and tear. Results of assessing the physical wear of elements:
Name of building elements | Actual age, years | General physical life, years | Depreciation, thousand rubles |
||
| roof | |||||
| floors | |||||
| window | |||||
| finishing coatings | |||||
| - | - |
Determining the amount of physical wear consists of several successive steps:
- determination of the amount of correctable physical wear;
- determination of the amount of irreparable physical wear in short-lived elements;
- determination of the amount of irreparable physical wear in long-lived elements.
Irreparable physical wear and tear corresponds to items for which repair is currently practically impossible or economically impractical. The amount of this type of wear and tear is determined based on the difference between the total replacement (or replacement) cost and the amount of removable physical wear and tear.
For the purpose of calculating wear, elements of a structure that have irreparable physical wear are divided into long-lived and short-lived.
For long-lived elements, the expected residual life coincides with the residual economic life of the entire structure. Short-lived elements have less residual economic life than the entire structure.
To assess irreparable physical wear and tear in short-lived elements, the method of calculating the life of a building is used: the difference between the total replacement (or replacement) cost of the element and the amount of correctable wear of the element is multiplied by the ratio of the actual age to the total physical life of the element.
In this case, the overall physical life of the element is determined from reference data, taking into account periodic repairs and maintaining normal operational characteristics.
To assess irreparable physical wear and tear in long-lived elements, the method of calculating the lifespan of a building is also used: the amount of correctable physical wear and tear and the sum of the replacement cost of short-lived elements with irreparable physical wear are subtracted from the total replacement (or replacement) cost and the result is multiplied by the residual replacement (or replacement) cost ) long-lived elements, as well as the relationship of actual age to the overall physical life of the building.
The overall physical life of a building is determined depending on the type of main structural elements for different categories of buildings according to durability. The classification of residential and public buildings by durability is given in the regulatory literature.
Example 33. Determine the physical deterioration of a residential building. We will present the initial data as the calculation progresses.
1. Based on the estimate documentation, we will determine the cost of new construction to assess accumulated wear and tear:
Name of building elements | Replacement cost, thousand rubles. |
| Direct costs (materials and equipment, labor, overhead and contractor's profit), | |
| foundation installation | |
| construction of external walls | |
| floor arrangement | |
| roofing | |
| installation of partitions | |
| installation of suspended ceilings | |
| flooring | |
| interior and exterior decoration | |
| sewerage system | |
| power supply system | |
| heating system | |
| Ventilation and air conditioning | |
| Indirect costs | |
| Entrepreneur's profit | |
| Total replacement cost |
2. Determine the amount of correctable physical wear:
Thus, the cost of correctable wear and tear is 3,000 thousand rubles.
2. Let us determine the amount of irreparable physical wear in short-lived elements:
Name of building elements | Replacement cost of the element, thousand rubles. | Actual age, years | General physical life, years | Depreciation, thousand rubles |
|
| roof | |||||
| floors | |||||
| finishing | |||||
| sewerage | |||||
| power supply system | |||||
| heating system | |||||
| Ventilation and air conditioning | |||||
| Total: | - | - |
Thus, the cost of irreparable physical wear in short-lived elements is 22,967 thousand rubles, the replacement cost of short-lived elements with irreparable physical wear is 33,000 thousand rubles.
Depreciation is characterized by a decrease in the usefulness of a property, its consumer attractiveness from the point of view of a potential investor and is expressed in a decrease in value (depreciation) under the influence of various factors over time.
As the facility is used, the parameters characterizing the structural reliability of buildings and structures, as well as their functional compliance with current and, especially, future use associated with human life, gradually deteriorate. In addition, the value of real estate is no less influenced by external factors caused by changes in the market environment, the imposition of restrictions on certain uses of buildings, etc.
Depreciation (I) is usually measured as a percentage, and the monetary expression of depreciation is depreciation (O).
Depending on the reasons causing the depreciation of a property, the following types of wear and tear are distinguished: physical, functional and external.
Classification of depreciation of real estate objects:
Each type of wear is characterized by its division: removable and irremovable.
Removable wear- wear, the elimination of which is physically possible and economically feasible. At the same time, economic feasibility lies in the fact that the costs incurred to eliminate one or another type of wear and tear should help increase the value of the object as a whole.
Fatal wear– wear and tear that is either physically impossible or economically impractical.
When all designated types of wear are identified, they speak of the total accumulated wear and tear of the property. In monetary terms, total depreciation is the difference between the replacement cost and the market price of the valued object.
Based on the essence of these definitions, it can be argued that the total accumulated wear and tear is, first of all, a function of the lifetime of the object. Taking this circumstance into account, let us consider the essence of the main evaluative concepts characterizing this indicator:
Physical life building ( VF ) - determined by the period of operation of the building, during which the condition of the load-bearing structural elements of the building meets certain criteria (structural reliability, physical durability, etc.). The physical life of an object is laid down during construction and depends on the capital group of the buildings. Physical life ends when the object is demolished.
Chronological age(HV)- this is the period of time that has passed from the date the facility was put into operation until the date of assessment.
Economic Life (EJ) - determined by the operating time during which the object generates income. During this period, improvements made contribute to the value of the property. The economic life of an object ends when the operation of the object cannot generate the income indicated by the corresponding rate for comparable objects in this segment of the real estate market. In this case, the improvements made no longer contribute to the value of the object due to its general wear and tear.
Effective age (EV)) - determined on the basis of the chronological age of the building, taking into account its technical condition and the economic factors prevailing on the valuation date that influence the value of the assessed object. Depending on the operating characteristics of the building, the effective age may differ from the chronological age up or down. In the case of normal (typical) operation of a building, the effective age is usually equal to the chronological age.
Remaining economic life (REL)) of a building is the period of time from the date of valuation until the end of its economic life.
Wear calculation methods:
1. Physical deterioration - represents a gradual loss of the technical and operational qualities of an object initially laid down during construction under the influence of natural and climatic factors, as well as human activity.
The following methods for calculating the physical deterioration of buildings are distinguished:
Standard (for residential buildings);
Cost;
Lifetime method.
Standard method for calculating physical wear and tear
The normative method for calculating physical wear and tear involves the use of various normative instructions at the interindustry or departmental level. An example of such instructions is the “Rules for assessing the physical deterioration of residential buildings” VSN 53-86 of Gosgrazhdanstroy (State Committee for Civil Construction and Architecture under GOSSTROE of the USSR. Moscow 1990), used by the Bureau of Technical Inventory for the purpose of assessing the physical deterioration of residential buildings during technical inventory , planning major repairs of the housing stock, regardless of its departmental affiliation.
These rules describe the physical wear and tear of various structural elements of buildings and their assessment.
The physical wear and tear of a building should be determined using the formula:
Fф = 
where Ff is the physical wear and tear of the building, (%);
Fi - physical wear i-ro of the structural element (%);
Li is the coefficient corresponding to the share of the replacement cost of the i-ro structural element in the total replacement cost of the building;
n is the number of structural elements in the building.
The shares of the replacement cost of individual structures, elements and systems in the total replacement cost of the building (in%) are usually taken according to the aggregated indicators of the replacement cost of residential buildings approved in the prescribed manner, and for structures, elements and systems that do not have approved indicators - according to their estimate cost.
Cost method for determining physical wear and tear
Physical wear and tear at the time of its assessment is expressed by the ratio of the cost of objectively necessary repair measures to eliminate damage to structures, an element, a system or a building as a whole, and their replacement cost.
The essence of the cost method for determining physical depreciation is to determine the costs of recreating building elements.
The described methodology allows you to calculate the wear and tear of elements and the building as a whole immediately in cost terms, which is more preferable than other methods for calculating physical wear and tear. In addition, since the impairment calculation is based on the reasonable actual cost of bringing worn-out items to “substantially new condition,” the result of this approach can be considered fairly accurate. Among the disadvantages inherent in this method, it is necessary to note the mandatory detail and accuracy of calculating the costs of repairing worn-out elements of the building.
Determination of physical deterioration of buildings using the lifespan method
Based on the essence of the previously discussed basic evaluative concepts characterizing the total accumulated wear and tear of a building from the point of view of its operation time, it can be argued that physical wear and tear, effective age and economic life are in a certain ratio. This relationship can be expressed by the following formula (1):
where: I(%) - wear as a percentage;
EV - effective age, determined by an expert based on the technical condition of the elements or the building as a whole;
VF - typical period of physical life;
RSFZ - the remaining period of physical life.
Or according to formula (2):
where: And (%) - wear as a percentage;
VF is a typical period of physical life.
The percentage of depreciation of elements or the building as a whole calculated in this way can be translated into monetary terms (depreciation):
O= BC *(I/100);
where: And - wear as a percentage; BC - replacement cost.
2. Functional wear
Signs of functional wear and tear in the building being assessed, as a rule, are the non-compliance of its space-planning and/or design solutions with modern standards, including various equipment necessary for the normal operation of the structure in accordance with its current or intended use.
Depending on the physical possibility and economic feasibility of eliminating the causes that caused functional wear, it is divided into removable and irreparable. The cost expression of functional wear is the difference between the cost of reproduction and the cost of replacement, since the calculation of the latter, based on its definition, obviously excludes functional wear from consideration.
· Removable functional wear
Removable functional wear and tear is usually determined by the cost of necessary reconstruction to facilitate more efficient operation of the property.
Reversible functional wear is considered to be caused by:
Disadvantages that require adding elements,
Disadvantages requiring replacement or modernization of elements,
Super improvements.
Disadvantages that need to be added, refer to elements of a building and equipment that are not present in the existing environment and without which it cannot meet modern operating standards. Depreciation due to these items is measured by the cost of adding these items, including their installation.
Disadvantages requiring replacement or modernization of elements, include positions that still perform their functions, but no longer meet modern standards (water and gas meters, etc.). Depreciation for these items is measured as the cost of existing elements, taking into account their physical wear, minus the cost of returning materials, plus the cost of dismantling existing ones and plus the cost of installing new elements. In this case, the cost of returning materials is defined as the cost of dismantled materials and equipment when used at other facilities (revisable residual value).
Towards super improvements include positions and elements of the structure, the availability of which is currently inadequate to modern requirements of market standards. Removable functional wear and tear in this case is measured as the current replacement cost of the “over-improvement” items minus physical wear and tear, plus the cost of dismantling and minus the salvage value of the dismantled elements.
An example of over-improvement would be a situation where the owner of a house, adapting it for himself, made some changes for his own convenience (investment value) that were not adequate from the point of view of a typical user. These include, for example, the redevelopment of the usable area of premises for a specific use, determined by the owner’s hobbies or his occupation. Removable functional wear in such a situation is determined by the current cost of bringing the changed elements to their original state. In addition, the concept of over-improvement is closely related to the segment of the real estate market, where the same improvements can be considered both appropriate for a specific segment and excessive from the point of view of a typical user.
· Unrecoverable functional wear
Irremovable functional wear and tear is usually caused by outdated space-planning and/or structural characteristics of the buildings being assessed relative to modern construction standards. First of all, the economic inexpediency of spending on eliminating these shortcomings allows us to judge the sign of irreparable functional wear. In addition, it is necessary to take into account the market conditions prevailing at the date of assessment in order for the building to be adequately architectural for its purpose.
3. External (economic) wear and tear
External depreciation is the depreciation of an object due to the negative influence of the external environment in relation to the object of assessment: the market situation, easements imposed on a certain use of real estate, changes in the surrounding infrastructure, legislative decisions in the field of taxation, etc. External wear and tear of real estate, depending on the reasons that caused it, in most cases is irreparable due to the unchanged location, but in some cases it can “remove itself” due to a positive change in the surrounding market environment.
Depreciation is characterized by a decrease in the usefulness of a property, its consumer attractiveness from the point of view of a potential investor and is expressed in a decrease in value over time (depreciation) under the influence of various factors. Depreciation (I) is usually measured as a percentage, and the monetary expression of depreciation is depreciation (O).
Depending on the reasons causing the depreciation of a property, the following types of wear and tear are distinguished: physical, functional and external.
Physical and functional wear and tear are divided into removable and irreparable.
Removable wear is wear, the elimination of which is physically possible and economically feasible, i.e. the costs incurred to eliminate one or another type of wear contribute to an increase in the value of the object as a whole.
Identifying all possible types of wear and tear is the accumulated wear and tear of a property. In monetary terms, total depreciation is the difference between the replacement cost and the market price of the valued object.
The cumulative accumulated wear is a function of the object's lifetime. Let us consider the basic evaluative concepts that characterize this indicator. real estate expense income depreciation
The physical life of a building (PL) is the period of operation of a building during which the condition of the load-bearing structural elements of the building meets certain criteria (structural reliability, physical durability, etc.). The physical life of an object is laid down during construction and depends on the capital group of the buildings. Physical life ends when the object is demolished.
Chronological age (CA) is the period of time that has passed from the date the object was put into operation to the date of assessment.
Economic life (EL) is determined by the operating time during which the object generates income. During this period, improvements made contribute to the value of the property. The economic life of an object ends when the operation of the object cannot generate the income indicated by the corresponding rate for comparable objects in a given segment of the real estate market. At the same time, the improvements carried out no longer contribute to the value of the object due to its general wear and tear.
Effective age (EA) is calculated based on the chronological age of the building, taking into account its technical condition and the economic factors prevailing on the valuation date that affect the value of the assessed object. Depending on the operating characteristics of the building, the effective age may differ from the chronological age up or down. In the case of normal (typical) operation of a building, the effective age is usually equal to the chronological age.
The remaining economic life of a building is the period of time from the valuation date to the end of its economic life.
Physical wear and tear is the gradual loss of the technical and operational qualities of an object originally laid down during construction under the influence of natural and climatic factors, as well as human activity.
Methods for calculating the physical deterioration of buildings are as follows::
- - normative (for residential buildings);
- - cost;
- - lifetime method.
The normative method for calculating physical wear and tear involves the use of various normative instructions at the interindustry or departmental level. These rules describe the physical wear and tear of various structural elements of buildings and their assessment.
Determination of physical deterioration of buildings using the lifespan method
In practice, elements of a structure that have removable and irreparable physical wear are divided into “long-lived” and “short-lived”.
“Short-lived elements” are elements that have a shorter lifespan than the building as a whole (roofing, plumbing equipment, etc.).
“Long-lived elements” are elements whose expected lifespan is comparable to the lifespan of the building (foundation, load-bearing walls, etc.).
Removable physical wear and tear of “short-lived elements” occurs due to the natural wear and tear of building elements over time, as well as careless operation. In this case, the sale price of the building is reduced by the corresponding impairment, since the future owner will need to make “previously deferred repairs” in order to restore the normal operational characteristics of the structure (routine repairs of the interior, restoration of areas of leaking roofing, etc.). This assumes that the items are restored to a “virtually new” condition. Removable physical wear and tear in monetary terms is defined as the “cost of deferred repairs,” i.e. costs of bringing the object to a condition “equivalent” to the original one.
Irremovable physical wear of components with a short life span is the cost of restoring fast-wearing components, determined by the difference between the replacement cost and the amount of removable wear, multiplied by the ratio of the chronological age and the physical life of these elements.
Removable physical wear of elements with a long life is determined by the reasonable costs of its elimination, similar to the removable physical wear of elements with a short life.
Irremovable physical deterioration of long-life elements is calculated as the difference between the replacement cost of the entire building and the sum of removable and irreparable deterioration, multiplied by the ratio of the chronological age and the physical life of the building.
Functional wear. Signs of functional wear and tear in the building being assessed are non-compliance of the space-planning and/or design solutions with modern standards, including various equipment necessary for the normal operation of the structure in accordance with its current or intended use.
Functional wear is divided into removable and irreparable.
The cost expression of functional wear is the difference between the cost of reproduction and the cost of replacement, which excludes functional wear from consideration.
Removable functional wear and tear is determined by the costs of the necessary reconstruction, which contributes to more efficient operation of the property.
Causes of functional wear:
- - shortcomings that require adding elements;
- - deficiencies requiring replacement or modernization of elements;
- - super improvements.
Deficiencies requiring addition - elements of the building and equipment that do not exist in the existing environment, and without which it cannot meet modern performance standards. Depreciation due to these items is measured by the cost of adding these items, including their installation.
Disadvantages that require replacement or modernization of elements - items that still perform their functions, but no longer meet modern standards (water and gas meters and fire-fighting equipment). Depreciation for these items is measured as the cost of existing elements, taking into account their physical deterioration, minus the cost of returning materials, plus the cost of dismantling existing ones and plus the cost of installing new elements. The cost of returning materials is calculated as the cost of dismantled materials and equipment when used at other facilities (revisable residual value).
Superimprovements are positions and elements of a structure, the availability of which is currently inadequate to modern requirements of market standards. Removable functional wear and tear in this case is measured as the current replacement cost of the “over-improvement” items minus physical wear and tear, plus the cost of dismantling and minus the salvage value of the dismantled elements.
Irremovable functional wear and tear is caused by outdated space-planning and/or structural characteristics of the buildings being assessed relative to modern construction standards. A sign of irreparable functional wear and tear is the economic inexpediency of spending on eliminating these deficiencies. In addition, it is necessary to take into account the market conditions prevailing at the date of assessment in order for the building to be adequately architectural for its purpose.
Depending on the specific situation, the cost of irreparable functional wear and tear can be determined in two ways:
- 1) capitalization of losses in rent;
- 2) capitalization of excess operating costs necessary to maintain the building in proper order.
Calculation of irreparable functional wear and tear by capitalizing the excess operating costs required to maintain the building in good condition can be done in a similar way. This approach is preferable for assessing the irreparable functional wear and tear of buildings that are distinguished by non-standard architectural solutions and in which, nevertheless, the amount of rent is comparable to the rent for modern analogue facilities, in contrast to the amount of operating costs.
External (economic) depreciation is the depreciation of an object due to the negative influence of the external environment in relation to the object of assessment: the market situation, easements imposed on a certain use of real estate, changes in the surrounding infrastructure and legislative decisions in the field of taxation, etc. External wear and tear of real estate, depending on the reasons that caused it, in most cases is irreparable due to the unchanged location, but in some cases it can “remove itself” due to a positive change in the surrounding market environment. - elements that have a shorter lifespan than the building as a whole (roofing, plumbing equipment, etc.).
Stage 3.
Depreciation is a decrease in the value of a property due to various reasons.
The concept of “wear and tear” used in valuation activities must be distinguished from the concept of “depreciation” used in accounting. “Depreciation” in accounting is the process of distributing the initial costs associated with the acquisition of an object over its entire service life, without determining its current value; in valuation activities, “wear and tear” is considered as the main factor for determining the current value, regardless of its original actual cost.
In addition to this distinction, it is also necessary to distinguish between the term "depreciation" used in the cost approach to real estate valuation and the "decline in property value" used by Ellwood in mortgage-investment capitalization.
With the cost approach, depreciation is determined in dollars at the current exchange rate in comparison with the current cost of reproduction of the object, and for Ellwood, with its subsequent resale. Ellwood also makes no attempt to distribute the amount of decline in the value of an object among its individual components.
In the cost approach, depreciation is used to account for differences in the characteristics of the new property and the actual property being valued. Accounting for the depreciation of an object is a kind of adjustment to the cost of a newly reproduced building (reproduced using the cost approach) in order to determine the value of the assessed object.
There are three types of wear and tear: physical, functional (or moral) and external (or economic).
Physical deterioration reflects changes in the physical properties of a property over time. For example, defects in structural elements.
Physical wear is of two types: the first occurs under the influence of operational factors, the second type - under the influence of natural and natural factors.
Physical wear and tear is taken into account in depreciation rates. In case of deviations in the normal operating conditions of the facility (earthquake, flood, etc.), correction factors are used, determined by experts.
There are four methods for calculating the physical depreciation of buildings: expert, cost, regulatory (or accounting) and the method of calculating the life of the building.
The percentage of physical wear and tear, for example, of a residential property, assessed by an expert method, is determined on the basis of the “Rules for assessing the physical wear and tear of residential buildings VSN - 53-86 Gosgrazhdan-Stroy”.
The service life of buildings as a whole depends on the durability of its components. Physical wear and tear of building elements is calculated using the formula:
Specific gravity of structural element i x% element wear i
The physical wear and tear of the entire building is determined as the weighted average of all elements of the building (see Table 3).
Table 3
Calculation of physical deterioration of a building
Based on the age of the building and its condition, the physical deterioration of the building amounted to A% of its replacement cost.
This method of determining the physical deterioration of a building can be called “expert”. It is usually used when taking inventory of real estate.
The appraiser also needs to be aware that there is reparable physical wear and tear and irreparable physical deterioration.
Removable physical deterioration assumes that the cost of ongoing repairs is less than the added value of the object.
Unrecoverable physical deterioration is considered when the cost of correcting the defect exceeds the value that would be added to the object. Any defect of an object can be corrected, but if the costs of correction exceed the benefits received, then the wear and tear is considered irreparable.
To determine irreparable physical wear and tear, building elements are divided into two categories: long-term and wear-and-tear. The wear of long-term elements, such as foundations, walls, floors, etc., can be calculated in groups by calculating their effective service life and the remaining physical life under real conditions.
Another method for calculating the physical wear and tear of long-term elements is to determine the cost of reproduction of building elements (or the cost method), presented in Table 4.
Table 4
Cost method for determining physical wear and tear"
In this case, through inspection, the percentage of wear of each element of the building is determined, which is then translated into value terms.
A more accurate adjusted cost method for calculating physical depreciation is obtained when the percentage of depreciation of building elements is determined as a weighted average.
The second category, the category of rapidly wearing elements of a building, includes those elements whose service life is shorter than the estimated economic life of the building. These include roofing, decorative finishing, painting, etc., i.e. those elements that can be repaired (restored) through routine repairs.
Methods for calculating physical deterioration for this category of building elements are similar to those used above for assessing physical wear.
There is also a regulatory (or accounting) method for determining the physical deterioration of buildings. It involves the use of uniform depreciation rates for the complete restoration of fixed assets in the Russian Federation, approved by Resolution of the Council of Ministers of the USSR of October 29, 1990 No. 1072.
Functional wear and tear of the object.
Functional obsolescence is when an object does not meet modern standards in terms of its functional usefulness. Functional obsolescence can manifest itself in the outdated architecture of a building, in the convenience of its layout, volume, engineering support, etc. Functional obsolescence is due to the influence of scientific and technological progress in the field of architecture and construction. Functional wear and tear in domestic practice is called obsolescence.
Functional wear, as well as physical wear, can be removable and irreparable. Removable functional wear can include the restoration of built-in cabinets, water and gas meters, plumbing equipment, floor coverings, etc. The criterion for whether wear is removable or not is a comparison of the amount of repair costs with the amount of additional cost received. If the additionally received cost exceeds the cost of restoration, then functional wear is removable.
The amount of removable wear and tear is determined as the difference between the potential value of the building at the time of its assessment with updated elements and its value at the date of assessment without updated elements.
Irremovable functional wear and tear refers to a decrease in the value of a building due to factors related to the quality characteristics of the building. Moreover, there may be either an excess or a lack of quality characteristics. For example, in the rental market two-room apartments are in great demand compared to one-room apartments. The amount of this type of depreciation is calculated as the amount of losses from rent when renting out these apartments, multiplied by the multiplier of the gross monthly rent typical for this type of apartment (see Table 5). Thus, the amount of irreparable functional wear and tear is determined by capitalizing rental losses.
Table 5
Calculation of irreparable functional wear
This example illustrates a case where there was a lack of quality characteristics, i.e. One room was missing to generate more income than from renting out a one-room apartment.
An example of functional wear and tear, when there are excessive consumer qualities, can be the presence of so-called “excess elements”, when the residents of the house, adapting it “for themselves,” made some changes for their own convenience. For example, the creation of intercom or air conditioning systems. The cost of installing these elements totaled $30,000. And when appraising the house, these elements added only $25,000 to the house’s value. Thus, the loss from installing these elements amounted to $5,000. This loss will amount to the amount of irreparable functional wear and tear associated with excessive consumer qualities of the house.
To approximately calculate the functional wear and tear of an object, you can determine an adjustment factor to the replacement cost of the building.
The correction factor is the ratio of the architectural, design and operational parameters of the object being evaluated to the same parameter of a modern analogue. In the absence of an analogue, the correction factor is determined based on the lifespan of the object.
External (or economic) wear and tear.
External (or economic) wear and tear or external wear is a decrease in the value of a building due to a negative change in its external environment, caused by either economic or political factors. The reasons for external wear and tear are the general decline of the area in which the property is located, the actions of the government or local administration in the field of taxation, insurance and other changes in the market for employment, recreation, education, etc.
Significant factors influencing the amount of external wear and tear are close proximity to “unattractive” natural or artificial objects: swamps, wastewater treatment plants, restaurants, dance floors, gas stations, railway stations, hospitals, schools, enterprises, etc.
If physical and, to a certain extent, functional wear and tear can be eliminated by reconstructing or modernizing a building, then wear and tear caused by external influences cannot be eliminated in most cases.
A way to measure external wear and tear is to analyze paired sales, when two comparable objects are sold on the real estate market, one of which has signs of external wear and tear, the other does not.
The difference in prices will allow us to draw a conclusion about the amount of wear and tear from the external influence of the building under evaluation (see Table 6)
Table 6
Calculating External Wear Using Paired Sales Analysis
Another way to measure external wear and tear is to compare the rental income of two properties similar to the property being assessed , one of which is negatively affected. Capitalization of income losses from comparing these two objects will characterize the amount of wear and tear from external influences. Capitalization is carried out using the gross rental multiplier as it is done in table 5.9.
Determining the physical wear and tear of an object by calculating its lifespan.
Economic life is the period of time during which an object can be used for profit. During this period, improvements contribute to the value of the property; The economic life of a property ends when improvements made do not contribute to the value of the property due to its general obsolescence.
The physical life of an object is the period of time during which the building exists and one can live or work in it. The physical life span ends when the object is demolished.
Effective age is based on an assessment of the appearance, technical condition, and economic factors affecting the value of the object. Effective age is the age that corresponds to the physical condition of the property and takes into account the possibility of its sale. If, after extensive renovation, a brick house that is 80 years old looks as if it were 15 years old, then the effective age of that house will be 15 years.
Chronological age is the period that has passed since the date the object was put into operation.
The remaining economic life of a building is the period from appraisal to the end of the economic life of the property. This period is usually used by the appraiser for valuation. Repairing and upgrading the property increases the remaining economic life. Changes in living standards can significantly reduce the economic life of a property. This phenomenon can be partially observed with “Khrushchev’s” five-story buildings.
Standard service life (or typical physical life) is the service life of buildings and structures determined by regulations.
The relationship between depreciation, replacement cost, effective age and typical economic life is expressed by the following relationship:
I/S- EV/TS E. Zh,
Where AND-wear;
Sun- replacement cost;
EV- effective age;
Tz Zh - typical economic life span.
This formula can be written as follows:
percentage of depreciation from replacement cost = EV/TC EZh.
Sometimes, for approximate calculations of depreciation, appraisers can use the ratio of the chronological age to the standard service life of the building, expressed as a percentage.
The total (cumulative) wear and tear of an object is determined by summing up all three types of wear: physical, functional and external wear.
Home > DocumentExternal (economic) wear and tear of property complexes of industrial enterprises. Calculation methods.
Kartsev P.V.
Depreciation as loss of property value
There are several methods for calculating wear and tear as the total loss of value of an object under the influence of various factors. There are two main methods: the breakdown method and the remaining economic life method. Splitting method involves breaking down wear and tear into 3 components: physical wear and tear, functional (moral) wear and tear, and external (economic) wear and tear. The total (accumulated) wear and tear is calculated in accordance with the following formula: Physical wear and tear is caused by physical aging of the property, the signs of which are loss of strength, accuracy, and decreased productivity. Here, the actual condition of the property is compared with the condition of the same new property. Functional(obsolescence) can be caused by the presence of a number of factors: more modern analogues of property that provide greater productivity; increased consumption of resources in the production process of the assessed object compared to modern analogues; higher cost of creating the object itself compared to analogues; for buildings - non-compliance of planning solutions with modern requirements and many others. External(economic) wear and tear is a loss of value caused by the influence of external factors. It can be caused by a number of reasons, such as general economic or intra-industry changes, including reduced demand for a particular type of product and reduced supply or deterioration in the quality of raw materials, labor, support systems, facilities and communications; and legal changes related to legislation, municipal ordinances, zoning and administrative regulations. Remaining economic life method involves taking into account all depreciation factors in one indicator - the remaining economic life. Wear here is calculated using the formula:
Methods for calculating external wear
Very often in appraisal practice the first method of calculating wear is used. If there are not many problems with determining physical wear and tear, since in Soviet times a fairly large regulatory framework for construction and mechanical engineering, depreciation standards and other indicators that can be used to assess the physical condition of an object were developed, then there are much more problems with determining the remaining two components difficulties. At the same time, in our time, the decrease in the value of property built in Soviet times occurred more under the influence of economic factors, so special attention should be paid to the correct assessment of external (economic) wear and tear. Currently, there are practically no methods for determining external wear in our country that are unconditionally accepted by the entire assessment community. At the same time, there are several methods that deserve the most attention. Option 1. Breakdown into micro and macroeconomic components. Many agree that external wear and tear of property complexes occurs due to the influence of macro- and micro-factors. Macro factors are the general state of the industry, the reasons for which are a decrease in demand for products, a decrease in government subsidies and other factors leading to a decrease in profitability in this industry. The same can be said about the economic situation in the region. The situation in the industry as a whole may be quite good, but in the local industry, in sectors such as agriculture, food processing, clothing, etc. (in relation to small and medium-sized enterprises) there may be a crisis in certain regions. Enterprises serve local markets. A decrease in effective demand in a given region affects the profitability of these enterprises, and, accordingly, their value. Micro factors can be considered a discrepancy between industry and regional indicators of capacity utilization and profitability at a particular enterprise. In the comparative and income approach, this is taken into account through relevant industry coefficients or directly through the income stream of a particular enterprise. In the cost approach, this should be taken into account through external wear. Macroeconomic factors can be taken into account through the difference in the level of income of the population of a particular region compared to the national average. Profitability by industry usually correlates well with average wages in these industries, so the industry component can also be taken into account through this indicator.
| And Ext.Macro% | ||
| Salary Country | average salary in Russia, rub.; |
|
| ZP Region | average salary in the region, rub.; |
|
| Salary Industry | average salary in the industry, rub. |
|
| And Ext.Macro% | macroeconomic component of external wear, %; |
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| F Enterprise | capital productivity at the enterprise being valued, rub.; |
|
| F Medium | average capital productivity in the region according to industry, rub. |
|
Example of external wear calculation
for egg poultry farm
It is possible, if it is necessary to obtain not only the value of the cost of the entire production complex, but also the cost of its individual constituent elements, to take into account the degree of loading separately for the groups of property included in the complex. The following example shows how this was done in real valuation practice when assessing an agro-industrial enterprise consisting of three poultry and egg farms. External wear and tear is calculated separately for main production equipment (cage equipment and incubators), main production buildings (poultry houses) and other production fixed assets. Such a calculation of external wear and tear is associated with varying degrees of loading of these groups of fixed assets. External wear and tear of main production buildings (poultry houses) External wear and tear of poultry houses is calculated based on the degree of use of these buildings, which is influenced by: - the degree of use of buildings as such, whether they are used or not used in the production process (the proportion of idle poultry houses out of the total number), the degree of loading of equipment installed in the building (the ratio of the number of poultry spaces actually used to the standard), the level of product yield (the ratio of actual egg production to the standard).
- the degree of loading of the equipment installed in the building (the ratio of the number of poultry spaces actually used to the standard), the level of product yield (the ratio of the actual egg production to the standard).
| № | Calculation of external wear | Total | Branch No. 1 | Branch No. 2 | Branch No. 3 |
| External wear for poultry houses | |||||
| By the number of working poultry houses | |||||
| 1 | Total poultry houses | 79 | 29 | 23 | 27 |
| 2 | none of them work | 31 | 5 | 11 | 15 |
| 3 | Proportion of idle poultry houses, % | 39% | 17% | 48% | 56% |
| On the use of bird places | |||||
| 1 | 57% | 58% | 51% | 61% | |
| 2 | Power use by young animals, % | 33% | 24% | 26% | 60% |
| 3 | 43% | 38% | 35% | 61% | |
| The third component of external wear | |||||
| By egg production of birds | |||||
| 1 | 270 | 245 | 250 | 287 | |
| 340 | 340 | 340 | 340 | ||
| 2 | Compliance with the norm, % | 79% | 72% | 74% | 84% |
| Total external wear and tear for buildings | 80% | 77% | 86% | 77% | |
| External wear for equipment | |||||
| The first component of external wear | |||||
| On the use of bird places | |||||
| 1 | Poultry space utilization rate for adult birds | 57% | 58% | 51% | 61% |
| 2 | Coefficient of use of poultry places by young animals | 33% | 24% | 26% | 60% |
| 3 | Overall utilization rate of poultry spaces | 43% | 38% | 35% | 61% |
| The second component of external wear | |||||
| By egg production of birds | |||||
| 1 | Egg production, eggs per year per hen (average) | 270 | 245 | 250 | 287 |
| Egg production rate, eggs per year | 340 | 340 | 340 | 340 | |
| 2 | Compliance with the norm, % | 79% | 72% | 74% | 84% |
| Total external wear and tear for poultry house equipment | 66% | 73% | 74% | 49% | |
| External wear for other buildings and equipment | |||||
| By use design capacity by number of bird places | |||||
| 1 | Production capacity, poultry place | ||||
| - | Laying hens | 982 | 350 | 272 | 360 |
| - | Young animals | 1073 | 360 | 382 | 331 |
| - | Parent stock | 209 | 76 | 61 | 72 |
| Total | 2264 | 786 | 715 | 763 | |
| 2 | Actual herd size, heads | ||||
| - | Laying hens | 488 | 204 | 131 | 153 |
| - | Young animals | 238 | 77 | 63 | 98 |
| - | Parent stock | 0 | 0 | 0 | 0 |
| Total | 726 | 281 | 194 | 251 | |
| 3 | Power utilization by laying hens, % | 50% | 58% | 48% | 43% |
| 4 | Power utilization by total population, % | 32% | 36% | 27% | 33% |
| Total external wear and tear for buildings and equipment | 68% | 64% | 73% | 67% |