The value of a building factors into almost every aspect of building development, construction, and maintenance. We are often asked, “How is the value of a building calculated?” It can seem like this is a mysterious number that gets pulled out of a hat, but there is actually a detailed (and complicated) way this number is determined. Below, we explain how it works.
How Building Value Impacts Alterations
Alterations to prior code buildings require applicants to consider the ratio of the costs of all proposed work against the value of the existing building. This ratio is used to determine the extent of several potential upgrades to the existing building. The higher the percentage of alteration costs to value, the greater the level of upgrades that are typically required.
There are several important thresholds for the cost-to-value ratio: 30%, 50%, and 60%. Each threshold requires increased levels of compliance with the latest codes and potential upgrades to egress, fire safety systems, and accessibility. Refer to 1968 NYC Building Code §§ 27-115, 27-116, and 27-117, and 2022 NYC Building Code Chapters 9 (fire protection) and 11 (accessibility).
It is vital for any alteration project to understand what the existing building value is to properly plan for proposed alteration work and to identify if additional work may be needed based on the costs.
Determining the Existing Building Value
Both 1968 NYC BC and 2022 NYC BC establish two possible methods for determining the existing building value per § 27-119 and BC 202 (definitions of “value”), respectively.
- One and one-quarter (1.25) times the current assessed valuation of the building, as adjusted by the current State equalization rate, or
- The current replacement cost of the building.
The first method of calculation – current assessed valuation – is based on the current Department of Finance (DOF) tax assessment for the current year or future year, if available. This information can be found online on the tax assessor’s website.
The calculation requires that you take the current estimated market value, minus the land value, times 1.25. It is important to note that these values are already adjusted by the DOF and the State equalization rates based on the type of property.
It is common, however, for some tax-exempt properties not to have accurate assessments online, which could result in an undervalued estimation using this method. If the assessment method results in a poor valuation and does not advance the needs of the project, a construction cost estimate for replacement of the existing building, in kind, in today’s dollars, can be prepared and submitted for consideration by the Department of Buildings (DOB). Such cost estimates are more closely reviewed by the DOB’s Cost Estimating Division and may be held to an increased level of scrutiny and increased review time.
Next Steps
The existing building value, once determined by either of the two methods described above, must be compared to the cost of all proposed alterations, including all alteration work that has been filed against the building in the prior 12 months, and evaluated by the codes to determine the required levels of compliance and upgrades needed.
If you have questions about how to calculate value or which method is preferable for your property, we can help.
