Depreciated replacement cost (DRC)
A short, practical note on depreciated replacement cost (DRC), with the public definition from IVS / Red Book (effective 31 January 2025).
In my practice, depreciated replacement cost is the cost approach for property that rarely or never sells on its own — a hospital, a school, a plant. I estimate what it would cost today to replace the building with a modern equivalent, then deduct for physical deterioration and every relevant form of obsolescence, and add the land. It answers ‘what would an equivalent cost?’, not ‘what would a buyer pay?’, so I use it where market evidence is thin and say so plainly in the report.
“The current cost of replacing an asset with its modern equivalent asset, less deductions for physical deterioration and all relevant forms of obsolescence and optimisation.”
Source: Red Book Global Standards, Part 2 Glossary («Depreciated replacement cost (DRC)»)
“Usually replacement cost is adjusted for physical deterioration and all relevant forms of obsolescence. After such adjustments, this can be referred to as depreciated replacement cost.”
Source: IVS 103 Valuation Approaches, Appendix A30.03
Common confusion
DRC ≠ construction cost: DRC deducts deterioration and obsolescence; a new-build cost does not.