Property Valuation
In the cost approach, 'reproduction cost' differs from 'replacement cost' in that:
AReproduction cost uses current materials; replacement cost uses original materials
BReproduction cost duplicates the exact original structure; replacement cost uses current materials and design for equivalent utility✓ Correct
CThey are the same concept
DReplacement cost always exceeds reproduction cost
Explanation
Reproduction cost duplicates the exact original structure with the same materials; replacement cost uses modern materials and design to provide equivalent utility — typically lower for older buildings.
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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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