Construction value

Building Value - The building value (also known as the physical value of the building) represents the value of the structure excluding the land. It is determined using the physical value method and is based on the hypothetical construction costs of a comparable new building, reduced by depreciation due to age. Together with the land value and the specific property characteristics, the building value yields the preliminary asset value of the property.

Calculation Using the Asset Value Method

The building value is determined in four steps according to the Asset Value Guideline (SW-RL) and the standard construction costs (NHK 2010):

1. Standard Construction Costs (NHK): The area-based construction costs for the respective building type and construction standard are taken from the NHK 2010 tables (euros per m² of gross floor area, GFA)
2. Indexation: The NHK are extrapolated to the valuation date using the construction cost index. Given the sharp increases in construction costs since 2021 (+30%), this step is particularly relevant.
3. Total construction costs: NHK × GFA × construction cost index factor = notional construction costs as a new building
4. Age-related depreciation: The construction costs are reduced by the age-related depreciation-calculated as the ratio of the elapsed to the total useful life

Building value = Construction costs - Age-related depreciation

Calculation Example - Single-Family Home in Nuremberg-Ziegelstein, Built in 1990

Parameter	Value
Building Type	Single-family home, medium standard (Level 2)
Gross Floor Area (GFA)	200 m²
NHK 2010 (indexed to 2024)	€1,800/m²
Construction costs (new construction)	200 × 1,800 = €360,000
Year of construction	1990 (34 years old)
Total useful life	80 years
Depreciation due to age	34 ÷ 80 = 42.5% → −€153,000
Building value	€207,000
Outdoor facilities (5%)	+ €10,350
Total construction value	approx. €217,000

In addition, the construction costs of the outdoor facilities (driveway, terrace, fencing) and special operating equipment are added. Modernization measures can “rejuvenate” the notional year of construction and reduce age-related depreciation-a complete renovation can shift the effective year of construction forward by 20-30 years.

Significance and Application

The construction value is primarily used in the valuation of owner-occupied residential properties where a capitalized income approach is not possible (since there is no rental income). Together with the land value, it forms the preliminary asset value, which is then multiplied by a market adjustment factor (asset value factor) to determine the market value.

The market adjustment factor compensates for the systematic deviation between the real value and actual purchase prices-in sought-after Nuremberg locations (e.g., Erlenstegen, Rechenberg), it is well above 1.0, while in structurally weaker regions it is below 1.0. The Appraisal Committee of the City of Nuremberg publishes these factors in its annual real estate market report.

Construction Value in Tax Practice

Construction value also plays an important role in tax-related purchase price allocation: Anyone purchasing a rented property must allocate the purchase price between a land component and a building component. Only the building component is eligible for depreciation (Section 7 of the German Income Tax Act [EStG], 2% annually for buildings constructed after 1924). An expert-determined purchase price allocation based on land and building values can optimize the depreciable building portion.

Calculation example: tax impact:

Purchase price	Building portion (construction value method)	Annual depreciation (2%)	Tax savings (42% real estate transfer tax)
€500,000	60% = €300,000	€6,000/year	approx. €2,520/year
€500,000	40% = €200,000	€4,000/year	approx. €1,680/year

The difference between an optimized (60%) and an unfavorably estimated (40%) building share amounts to approximately €840 in annual tax savings-over a 30-year holding period, that’s more than €25,000.

Practical Tip for Property Owners in Nuremberg and Franconia

We recommend that property owners in the Nuremberg metropolitan region have the construction value of their property determined by an appraiser if they need to know the pure building value-excluding the land value. This is particularly important for the tax allocation of the purchase price for rental properties (depreciation calculation under Section 7 of the German Income Tax Act). With a correct expert allocation of the purchase price, landlords in Nuremberg can achieve annual tax savings ranging from several hundred to over a thousand euros, depending on the property.

The City of Nuremberg’s Appraisal Committee publishes the current real value factors in its real estate market report-these factors should be incorporated into every construction value calculation for the region and are decisive in determining whether the calculated real value matches the actual market value.

Frequently Asked Questions

What is the difference between construction value and real value?

The construction value refers exclusively to the building: construction costs (NHK, indexed) minus depreciation due to age plus outdoor facilities. The real value comprises the construction value plus the land value (standard land value × property area) plus specific property-related characteristics (value-reducing: construction defects, modernization backlog; value-enhancing: expansion potential, special features). The asset value is then multiplied by the market adjustment factor to determine the market value. The construction value is thus an intermediate result on the way to the market value.

How is the depreciation due to age calculated?

Depreciation due to age is calculated linearly according to the asset value guideline: (Age of the building ÷ Total useful life) × Construction costs. The total useful life is 50-80 years depending on the building type (solid-construction single-family home: 80 years, light-construction: 50 years). A 30-year-old solid-construction house with a total useful life of 80 years has an age-related depreciation of approximately 37.5%. Modernization measures can lower the notional year of construction and thus reduce the age-related depreciation-a comprehensive renovation (heating, roof, windows, facade, plumbing) can move the notional year of construction forward by 20-30 years.

Is the construction value equal to the current market value?

Not necessarily. The construction value is a standardized calculation parameter in real estate valuation according to the Real Property Valuation Guidelines and NHK 2010. The current market value (colloquially) refers to the building’s current market value, which is determined by supply and demand. The two can differ significantly: In sought-after locations in Nuremberg, the actual market value is often considerably higher than the calculated construction value, as the market adjustment factor is well above 1.0. Conversely, in structurally weak locations, the construction value may exceed the market value-which is an important warning sign for both appraisers and buyers.

Back to the Real Estate Glossary.