A supported modern equal-utility substitute omits obsolete two-foot masonry walls. What distinction follows?
Correct Answer
B) Reproduction includes their replica cost; replacement omits the excess.
A strict replica includes the specified obsolete construction, while a supported equivalent-utility substitute may omit it. The basis and depreciation must be compatible so that an omitted excess is not charged again. Neither terminology permits uncritically using historical book cost.
Why This Is the Correct Answer
Option B is correct because reproduction cost is the cost of a replica, so it includes the obsolete thick walls, while replacement cost is the cost of a property of equivalent utility, which omits them. That is the key distinction between the two bases.
Why the Other Options Are Wrong
Option A: Replacement must duplicate the obsolete walls as built.
Option A, replacement must duplicate the obsolete walls as built, is wrong because duplicating the original construction describes reproduction cost. Replacement cost uses modern equivalent-utility construction and omits the excess.
Option C: Both estimates are identical for an older property, so either basis can be used.
Option C, both estimates are identical for an older property, is wrong because the two can differ greatly when the original has obsolete features. Here the masonry walls appear in reproduction cost but not replacement cost.
Option D: Historical book cost is required for the obsolete masonry materials.
Option D, historical book cost is required for the obsolete masonry materials, is wrong because both reproduction and replacement cost are current cost estimates as of a particular date. Historical book cost is not the basis for either.
Reproduce copies, replace improves
Reproduction makes a copy, flaws and all; replacement builds the same usefulness the modern way.
How to use: Use this when a question asks which cost basis includes or omits an obsolete feature.
Exam Tip
If an answer says replacement duplicates original materials, it has the terms reversed. Both bases use current costs, not historical book cost.
Common Mistakes to Avoid
- -Reversing the definitions of reproduction and replacement cost
- -Assuming the two bases give the same figure for older buildings
- -Using historical book cost as a current cost estimate
Concept Deep Dive
Analysis
This question tests the difference between reproduction cost and replacement cost. Reproduction cost estimates an exact replica, including obsolete features such as two-foot masonry walls. Replacement cost estimates a modern substitute of equal utility, which would not include that excess construction.
Background Knowledge
Reproduction cost is the current cost to build an exact replica, while replacement cost is the current cost to build a property with equivalent utility using modern materials and design. The choice of basis affects how much functional obsolescence must be deducted, and depreciation must be compatible with the basis to avoid double counting.
Real-World Application
An appraiser valuing an early-1900s house with very thick masonry walls estimates replacement cost using modern wood framing of equal utility. Had the appraiser used reproduction cost, the extra wall cost would have to be addressed as functional obsolescence.
More Cost Approach Questions
Why can equivalent-utility replacement cost be useful for an obsolete improvement?
An appraiser estimates the current replacement cost new of the improvements at $890,000, accrued depreciation from all causes at $170,000, and land value at $325,000. All necessary cost components and depreciation are included in those amounts. What is the indicated property value?
Improvement cost new is $595,000. Separately supported improvement depreciation deductions of $48,000, $27,000 are expressly nonoverlapping and not already excluded from cost new. Add supported site value of $155,000, already reflecting any site losses. What total indicated value results?
What best supports a claimed loss from a bathroom-layout deficiency?
Improvement cost new is $1,850,000. Separately supported improvement depreciation deductions of $310,000, $620,000 are expressly nonoverlapping and not already excluded from cost new. No site is included. What depreciated improvement amount results?
Which scenario most strongly supports giving the cost approach substantial weight?
A cost total $650,000 explicitly includes $40,000 of non-realty FF&E outside the appraised real-property interest. Exclude it. Supported realty-only total depreciation is $55,000. Add site $200,000, with no overlap. What real-property cost indication results?
A 2,200-sf dwelling costs $200 per square foot, and a separate 400-sf garage costs $75 per square foot. These costs are complete and do not overlap. Both have an effective age of 15 years and a total life of 50 years, with straight-line depreciation and no salvage value. No site value or other loss is involved. What is the combined depreciated cost of the dwelling and garage?
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Previous Question
A 45-year-old building has a supported effective-age estimate below 45 years after current condition-and-utility analysis. Under a 65-year total-life age-life model, which relationship follows?
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Dwelling cost new is 3,000 sf×$160/sf and dwelling total loss $96,000. A separate 500 sf garage costs $60/sf with its own $6,000 total loss. No costs or losses overlap. Add site $180,000. What total indication results?