Replacement Cost Approach

Also called the cost approach, this is a method used by appraisers to estimate the value of a property, based on the cost to produce a similar property. This approach begins with the current cost of the land and the improvements, but then depreciates that estimate according to the age and condition of the subject property. The elements of the replacement approach use one of the following methods to estimate unit costs: square foot, cubic foot, unit in place, quantity survey and index. Contrast this with the reproduction cost approach. For more information, see the "Analyzing Apraisal Reports" article (in the "Loan Process" section) and the "Hazard Insurance" article (in the "Mortgage Industry" section).

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