How a DRC is Calculated

Rebuild Cost

The cost of constructing a new, modern equivalent school using current materials and building techniques. The rebuild cost is assessed using recognised industry benchmarks, primarily the Building Cost Information Service (BCIS) of the Royal Institution of Chartered Surveyors (RICS).

• The BCIS provides up-to-date, evidence-based cost data for constructing modern school buildings to current specifications.
• The costs are adjusted according to the type of building (e.g., primary school, secondary school, specialist education facility) to ensure an accurate estimate for the specific type of school being valued
• Adjustments are made for the type, size, age, and location of the property to ensure the estimated cost reflects the real-world requirements for rebuilding a similar facility today.

This approach ensures that rebuild estimates are consistent, credible, and aligned with best practice valuation guidance.

Depreciation

Depreciation reflects the reduction in value from the theoretical cost of a brand-new building, taking into account:

• Physical Obsolescence: Deterioration due to wear and tear, ageing materials, or structural defects.
• Functional Obsolescence: Inefficiencies caused by outdated design, layout, or facilities that no longer meet modern educational needs (e.g., poor accessibility, small classrooms).
• Economic Obsolescence: External factors that diminish value, such as changes in educational standards, curriculum requirements, or local demand for school places.

This ensures that the valuation provides a realistic figure based on the building’s actual current utility and condition, not just its replacement cost.

Land Value

In a Depreciated Replacement Cost (DRC) valuation, the value attributed to land is based on the cost of acquiring a modern equivalent site — not necessarily the actual site currently occupied. The objective is to estimate what a prudent purchaser would pay for a site that delivers the same service potential, in the most efficient and cost-effective way, at the valuation date.

However, through consultation with academy trusts, where the actual site continues to meet the school’s specific operational and service delivery requirements, it may be deemed reflective of a modern equivalent. In these cases, the characteristics of the existing site (such as location, size, accessibility, and service infrastructure) may be incorporated into the valuation, provided they are not excessive or commercially inappropriate.

Key Considerations:

• Efficient Site Size
• The site area used in valuation reflects only the land necessary to support a modern equivalent facility. If the current site is larger than required (e.g. 5 hectares vs. 3 hectares), only the necessary portion is valued — unless the excess is demonstrably required for educational function.
• Geographic Constraints
• Schools serve defined communities, so potential replacement sites must lie within realistic catchment or service areas. Location assumptions must reflect actual delivery needs and planning constraints.
• Playing Fields
• Playing fields and open spaces associated with schools are valued separately from the main school site. Their valuation reflects their continued educational and recreational use, consistent with the protections afforded under Section 77 of the School Standards and Framework Act 1998, which restricts the disposal or change of use of school playing fields without appropriate consent. This ensures that the value attributed to these areas aligns with their statutory protection and intended use, rather than potential alternative commercial development value.
• Leasehold Sites
• Where the school site is held under a long leasehold interest (typically 125 years or more), it is considered prudent and appropriate to adopt a valuation approach equivalent to a virtual freehold. This reflects how such leases operate in practice and aligns with standard valuation treatment under the RICS Red Book and public sector DRC guidance. Shorter or more restrictive lease terms may require a different approach and would be considered on a case-by-case basis.
• Surplus Land
• Land that is not necessary for core service delivery is treated as surplus and assessed separately in accordance with applicable accounting standards.
• Planning Use and Comparables
• The valuer must determine what land use class the hypothetical purchaser would compete with in the local market. Planning permission for school use can be assumed, and comparable sales evidence from similar use classes should be used.
• Costs
• The land value adopted typically reflects the market value of a suitable replacement site that meets the school’s service delivery needs. This value excludes acquisition and transaction costs, in line with standard DRC valuation practice under RICS guidance, unless otherwise stated. Site value does not include incidental costs, such as special incentives or statutory allowances, unless they are specifically relevant and appropriate to the valuation scenario.

This structured methodology ensures that all elements of the site are appropriately assessed, fully compliant with professional valuation standards (RICS Red Book), and suitable for accounting under FRS 102 and the Charities SORP 2019.

Further Reading

For detailed guidance on Depreciated Replacement Cost (DRC) valuations, you may find the official RICS Valuation – Professional Standards and the accompanying DRC guidance invaluable. These resources provide comprehensive information on methodology, best practice, and compliance.

Access the RICS DRC Valuation Guide here:
RICS DRC Method