Property Valuation
In Montana, the replacement cost (as distinguished from reproduction cost) in the cost approach uses:
AThe original construction cost adjusted for inflation
BThe cost to build a functionally equivalent building using modern materials and techniques✓ Correct
CThe cost to build an exact replica of the existing structure
DThe highest possible construction cost estimate
Explanation
Replacement cost estimates the cost to build a functionally equivalent structure using current construction materials, techniques, and standards—not necessarily an exact replica. Reproduction cost uses the same design, materials, and construction methods as the original.
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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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