In the cost approach to appraisal, 'reproduction cost' differs from 'replacement cost' in that:
Why Reproduction cost is the cost to build an exact replica; replacement cost is the cost to build a functionally equivalent structure Is Correct
Answer B: Reproduction cost is the cost to build an exact replica; replacement cost is the cost to build a functionally equivalent structure
Exam Tip: Property Valuation
Valuation questions focus on the three approaches to value: sales comparison, cost, and income. Know which approach is best for which property type. The income approach uses cap rate and NOI — memorize these formulas.
Key Property Valuation Terms in This Question
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Key Terms to Know
A professional estimate of a property's market value prepared by a licensed or certified appraiser.
Capitalization Rate (Cap Rate)A rate used to estimate the value of income-producing property, calculated as Net Operating Income divided by property value.
Gross Rent Multiplier (GRM)A quick valuation metric for income properties calculated by dividing the property price by gross annual rental income.
Net Operating Income (NOI)The annual income generated by an income-producing property after subtracting operating expenses, but before debt service.
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