Replacement Cost Vs. Reproduction

[KYLECODY]

Ive overthought this tonight. Im doing replacement for my CAs and was thinking about effective age, age/life, depreciation, etc...but if its replacement cost there would be no need for any depreciation calculations on that as it would be as if it had burned to the ground and was being rebuilt. It would be new and therefore no measurable depreciation could exist as of the rebuid date. Takes care of the effective age issues. Am I up too late or is this correct?

 

[Timothy Wixted]

Get some sleep.

Tim

 

[The Warrior Monk]

Am I up too late or is this correct?

Posted on Dec 12 2005, 02:42 AM

:rofl:

 

[bradellis]

Kyle,

Sorry- cannot get off that easy.

The difference between replacement and reproduction costs is that with reproduction costs you would replicate the subject in its exact configuration and using methods and materials that would have been used when it was built.

Replacement cost would assume corrections to deficiencies but not reproduction cost. So you would still possibly have all forms of depreciation present.

Brad

 

[jonathan asbury]

wouldnt reproduction be reproducing the existing structure as exact as posible and using the materials and level of workmanship - but to todays code standards(otherwise it could never by rebuilt)

where as replacement is just replacing the structure with a a new structure of similar style, functionality, and utility.

as far as the depreciation-

given two houses whos sales comparaison approach indicated similar values , if you were the insurance company who would you pay out more to?
homeowner a) 2 year old home perfect in every respect or
homeowner B) 15 year old home with tons of defered maintenance

or-
if you crash your car and the insurance pays you out, do you get full purchase price??

jonathan

 

[bradellis]

Jonathon,

Sure, today's code would have to be obeyed but remember we are doing this hypothetically in reproduction cost since many of the materials and those who would know the craftsmanship might be unavailable altogether. When they re-did the statue of liberty, the gold leaf guy had to train 2 more guys as he was the only one who knew the techniques.

As to depreciation, would that not depend upon the type of policy? Full replacement would not even get into deprecdiation- and it sure would be replacment vs. reproduction unless one made some very sepcial arrangments. If not replacement cost, the insurance firm would use their own figures- they are not going to rely upon an appraiser for that.

Brad