Property Valuation
In the cost approach to value, 'reproduction cost' differs from 'replacement cost' in that:
AA. Reproduction cost estimates building a modern equivalent; replacement cost is the exact duplicate
BB. Reproduction cost is the exact duplicate with original materials; replacement cost uses modern materials/methods✓ Correct
CC. They are the same thing
DD. Reproduction cost applies only to historic buildings
Explanation
Reproduction cost = cost to build an exact replica using original materials and methods. Replacement cost = cost to build a building with equal utility using current materials and standards.
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Key Terms to Know
Appraisal
A professional estimate of a property's market value prepared by a licensed or certified appraiser.
DepreciationA reduction in the value of an improvement (building) over time due to physical deterioration, functional obsolescence, or external factors.
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.
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