Property Valuation
In the cost approach to value, reproduction cost differs from replacement cost because:
AReproduction cost uses current construction standards
BReproduction cost means the cost to recreate an exact replica of the existing structure✓ Correct
CReplacement cost is always higher than reproduction cost
DReplacement cost is the cost to rebuild the same structure with the same materials
Explanation
Reproduction cost is the cost to build an exact replica of the existing structure using the same materials and design. Replacement cost is the cost to build a structure of similar utility using current materials and standards.
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Key Terms to Know
Comparable Sales (Comps)
Recently sold properties similar in size, condition, and location used by appraisers and agents to estimate a property's market value.
AppraisalA 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.
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