Valuing real estate using the cost method
Data
- Location of the property: The property is located in Jeddah. It is an economically and commercially active city.
- Property areas: The land area is 625 square meters. The total building area is 500 square meters. The wall is 100 meters long. Basement area of 200 square meters.
- Property condition: 15 years old. It’s a middle age.
- Features of the villa: Swimming pool (4m*6m*2m). Car umbrellas 30 square meters
Cost estimate
The indicative price guide available on the website of the General Authority for Certified Valuers is used, where the guide contains the prices of the cost of building real estate of all kinds and is summarized in the price per square meter for the flat, as it includes all costs and expenses, as well as the developer’s profit.
- Indicative villa prices:
| Replacement Cost (Indicative Price Guide) for Buildings | |
| General classification | Residential |
| Detailed classification | Residential villa |
| Category/Improvements | class A |
| Cost of construction and improvements (buildings) | 2,400 SAR per m2 |
| Fence construction cost | 600 SAR – M.I. |
| Basement Construction Cost (Buildings) | 3,000 SAR per m2 |
| Percentage of bone cost to total construction cost | 0.0% |
| Bone construction cost (buildings) | 0 SAR per m2 |
| Basement Bone Construction Cost (Buildings) | 0 SAR per m2 |
| Pools | 1,200 riyals per m3 |
| Parking lot awnings | 120 SAR per m2 |
| Fire Alarm and Fire Fighting System | 0 SAR per m2 |
| Central air conditioning | 0 SAR per m2 |
- Calculate the cost:
| Calculating total construction costs | |
| Total area of buildings | 500.00 m2 |
| Total cost of construction of buildings and improvements | SAR 1,200,000 |
| Total Mabey Area (Bone) | 0.00 m2 |
| Total cost of construction of buildings and improvements | 0 Real |
| Total Wall Length | 100 m.i. |
| Total Fence Cost | 60,000 SAR |
| Total basement area | 200.00 m2 |
| Total basement construction cost | 600,000 SAR |
| Total Basement Area (Bone) | 0.00 m2 |
| Total basement construction cost | 0 Real |
| Pool size | 48 m3 |
| Total pool construction cost | 57,600 SAR |
| Area of parking lot awnings | 30.00 m2 |
| Total cost of constructing parking lot canopies | 3,600 SAR |
| Total building area Alarm and firefighting system | 0.00 m2 |
| Total cost of fire alarm and firefighting system | 0 Real |
| Total building area Central air conditioning | 0.00 m2 |
| Total cost of central air conditioning | 0 Real |
| Total construction costs (excluding financing costs) | 1,921,200 SAR |
| Duration of development | 1.0 years |
| Finance interest rate per annum | 7.0% |
| Funding percentage of development time | 50.0% |
| Financing ratio of financing cost | 50.0% |
| Total Cost of Funds | 33,621 SAR |
| Total Development Value | 1,954,821 riyals |
- Calculate the value of the building and deduct depreciation:
| Calculating the value of buildings | |
| Lifespan of the building | 40 years |
| Remaining life of the building | 15 years |
| Annual depreciation rate (extended life) | 62.5% |
| Depreciation rate | 0.0% |
| Economic depreciation rate | 0.0% |
| Total development value | 1,954,821 riyals |
| Depreciation value | 1,221,763 riyals |
- The value of the building is 733058 SAR after deducting depreciation
- The land was valued by the comparative method at SAR 2 million
- Add the value of the building with the land to make the market value of the villa 2,733,058 SAR
Conclusion
Based on the data and steps above. The market value of the property shown above is SAR 2.73 million.
Notes:
- The actual market value of the property may differ from the estimated market value. This is due to other factors not considered in this assessment. Such as the quality of the finishes and services provided in the property.
- The comparative method can be used to assess the value of land only. using sales data for similar properties in the area.
Addition:
In addition to the above-mentioned data. The following data can be added to the property appraisal:
- Type of construction: Is it concrete or bone construction?
- Quality of finishes: Are the finishes good, average or poor?
- Services provided: Does the property have services such as security, janitorial, and cleaning?
This data can affect the market value of the property. So it’s important to take them into account when making an assessment.
