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Reproduction Cost

By on September 8, 2018

Reproduction cost in real estate refers to the total costs of an exact duplication of a property and it’s improvements as of a certain date.

The definition can resemble that of replacement cost, it is very different when we look into the details.

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Because while replacement cost (used by insurers) describes just the replacement of functional utility of a property, reproduction cost describe the complete mirror replication of the property, including all it’s interior components.

For example, if a building with high ceilings with an interior made of gold, replacement cost might only account for a new building with high ceilings. Reproduction cost will account for all the gold interior furnishing and fixtures too.

When a cost approach of valuation is used by an appraiser to estimate the value of a property, he would determine whether to use either a replacement or reproduction cost, plus land value, and deduct depreciation for estimated obsolescence and wear.

For example, if the reproduction cost of a building is estimated to be $450,000, wear and tear could account for $80,000, while functional obsolescence work out to $90,000. The final value would be $280,000 after accounting for appraisal depreciation.

Quantity surveys and unit-in-place are also two appraisal methods used with the sole purpose of calculating reproduction costs.



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