Property Valuation
The 'replacement cost' in the cost approach differs from 'reproduction cost' in that replacement cost uses:
AIdentical materials and methods
BModern equivalent materials and current construction methods✓ Correct
CThe seller's actual construction costs
DThe PVA's published construction cost tables
Explanation
Replacement cost uses current materials and construction methods to build a functionally equivalent structure, while reproduction cost uses identical materials and methods to create an exact replica.
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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.
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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