1. 10 The Cost Approach—Part I: Reproduction/Replacement Cost
Cost approach formula
Reproduction or Replacement Cost of Improvements
Depreciation on Improvements
Site Value
Property Value ̶ + =
Basic value principle is substitution

2. Reproduction Cost vs Replacement Cost
Reproduction cost = $$ required to construct exact duplicate of the subject improvements at prices current as of the effective appraisal date Replacement cost = current cost of improvements having the same utility and general quality as the subject improvements

3. Finding Reproduction/Replacement Cost
Index method Factor representing percentage change in construction costs from date of construction to effective date of appraisal is applied to original cost
Present Index Index at Time of Construction
Original Cost
Present Cost x =

4. Finding Reproduction/Replacement Cost
Square-foot method
Cost per square foot of recently built structure that is comparable to the subject is multiplied by number of square feet in subject structure
Commonly used for residential appraisals as check on sales comparison approach
Cost manuals provide typical construction costs for structures of defined specifications and regional factors to account for local differences
construction.com/dodge marshallswift.com rsmeans.com

5. Finding Reproduction/Replacement Cost
Unit-in-Place Method
Costs of components are estimated separately, then totaled to find current construction cost
Residential building costs typically include:
Foundation Floor structure Floor covering
Exterior walls Roof structure Roof covering
Ceiling Plumbing Fireplace(s)
Interior construction Electrical system
Heating/cooling system Appliances

6. Finding Reproduction/Replacement Cost
Commercial building costs typically include:
Foundation Interior construction
Floor construction Interior finishing
Framing Electrical system
Roof construction Heating and A/C
Exterior walls Plumbing system
Windows and doors Parking area

7. Finding Reproduction/Replacement Cost
Quantity survey method
Complete itemization of all costs expected in building construction
Direct costs are materials and labor
Indirect costs include:
surveys building permit
payroll taxes insurance
builder’s overhead and profit entrepreneurial profit