Replacement Cost vs. Reproduction Cost: What’s the difference?

Even seasoned appraisers can sometimes confuse the terms “Replacement Cost” and “Reproduction Cost”.  What do these terms mean and why do they matter?

Moana Pacific Under Construction

Moana Pacific Under Construction

replacement cost
The estimated cost to construct, at current prices as of the effective appraisal date, a substitute for the building being appraised, using modern materials and current standards, design, and layout.

Source: Appraisal Institute, The Dictionary of Real Estate Appraisal, 5th ed. (Chicago: Appraisal Institute, 2010).

reproduction cost
The estimated cost to construct, at current prices as of the effective date of the appraisal, an exact duplicate or replica of the building being appraised, using the same materials, construction standards, design, layout, and quality of workmanship and embodying all the deficiencies, superadequacies, and obsolescence of the subject building.

Source: Appraisal Institute, The Dictionary of Real Estate Appraisal, 5th ed. (Chicago: Appraisal Institute, 2010).

The key difference is the type of improvement being considered.  Are we looking at a new building with modern materials, or an exact replica?

The main idea is to use one or the other consistently throughout the analysis.

Questions or comments?  Please leave them in the comment  box below, I would be happy to clarify and/or expand.

Aloha, Chris

Please read my disclaimer.

About Chris Ponsar
I'm a commercial and high-end residential real estate appraiser in Hawaii. I'm passionate about appraisal and valuation issues in the same way some folks obsess over football, shopping, or bacon. I love this stuff.

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