California Real Estate SalespersonProperty Valuation and Financial AnalysisEasy
An appraiser is applying the cost approach and estimates the cost to construct a building with the same utility as the subject, using modern materials, design standards, and construction methods, rather than an exact duplicate of the original structure. This cost estimate is known as:
- ADepreciated cost
- BReproduction cost
- CMarket value
- DReplacement cost
Show answer & explanationAnswer & explanation
Correct answer: D. Replacement cost
Replacement cost is the cost to build a structure with equivalent utility using current materials and design, while reproduction cost is the cost to build an exact replica using the same materials and design as the original.
Why the other options are wrong
- A. Depreciated cost is cost new minus accrued depreciation, not the definition given.
- B. Reproduction cost is an exact duplicate, not an equivalent-utility substitute.
- C. Market value is the price a willing buyer/seller would agree on, not a construction cost concept.
Replacement Cost vs Reproduction Cost
Replacement cost = cost of a substitute with equal utility using current standards; reproduction cost = cost of an exact replica using original materials/design.
- Replacement avoids obsolete features
- Reproduction duplicates exactly, including outdated elements
- Replacement cost is more common in practice for older buildings
Memory trick: Reproduce = replica; Replace = same job, modern tools