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Reproduction Cost New vs Replacement Cost New

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Ken B

Thread Starter
Elite Member
Joined
Feb 18, 2004
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Certified General Appraiser
State
Florida
So I am preparing to take my CG exam and I am using an exam prep product which is either only slightly better than nothing or, if actually indicative of the difficulty of the current exam, explains a lot about why it seems there are a lot of "um, duh" questions asked around here.

Anyways, one of the questions regards reproduction cost new and replacement cost new and the "correct" answer states that they are the same when the improvements are new.

I disagree. It would be true if it were assumed that the new improvement did not contain functional deficiencies, defects, or superadequacies.

While it may not be sensical to do so, a property could be built new with the textbook example of a 3' thick concrete foundation when all that would be necessary is a single-course CMU foundation. Reproduction cost new would consider the cost of rebuilding with the thicker foundation while replacement cost new would consider the thinner foundation.

At least that is the way I learned how it works many years ago. Am I out of date or is the exam prep answer wrong? Considering other defects in the software, I am leaning towards the given answer being incorrect.
 

stefan olafson

Senior Member
Joined
Apr 2, 2003
Professional Status
Certified General Appraiser
State
North Dakota
A new property with none of the deficiencies or superadequacies theoretically could be replaced or reproduced and end up with identical costs.

Given that perfect example, let's look at reality, what property isn't built with super adequacies, functional problems or defects? Probably close to none.

So, in the exam prep, they are correct, in the real world they really aren't...

It's just important that you know the difference and it sounds like you do.
 

Elliott

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Joined
Apr 23, 2002
Professional Status
Certified General Appraiser
State
Oregon
Do you want to be 'right' or pass the exam? Your choice. The dimwit
that made up the exam assumed the hypothetical house was designed
and built by a someone who was sufficiently in touch with typical demands
and standards of the market. So there would be no difference between
the repro and replacement. There are very important committees that
design those tests and some have read many appraisal books.
 

Ken B

Thread Starter
Elite Member
Joined
Feb 18, 2004
Professional Status
Certified General Appraiser
State
Florida
I guess I have seen too many new custom built properties with built-in functional superadequacies. The question demands an assumption of a perfect market which does not exist.

The "correct" answer to the question requires an "always" or "never" type of response which is very rarely true.
 
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Eturner

Sophomore Member
Joined
Nov 23, 2002
Professional Status
Certified Residential Appraiser
State
Illinois
It has always been my understanding that if the property is new construction, both replacement and reproduction costs should be equal. Reproduction costs rarely come in to play in our business.

If you were looking at, lets say a early bungalow home built near the early 1900's and the scope of work called for building it back as near as possible to that same style and quality, then reproduction costs would be quite different. But if it burned down or was torn down and the plan was to build back a more modern style home with amenities and fixtures expected today, then you would be looking at replacement costs for a home of similar or better livability standards. Thus, unless otherwise indicated by the scope of work requested by the client, I estimate a replacement cost using current materials available in the market.
 

Fred

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Jan 15, 2002
Professional Status
Retired Appraiser
State
Virgin Islands
They could be the same, if...
 

Terrel L. Shields

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May 2, 2002
Professional Status
Certified General Appraiser
State
Arkansas
If a frog had a pocket to carry a pistol in, he wouldn't be afraid of snakes.

It is usually implied that the test creator know more than the test taker, but in appraising, that is not necessarily the case...
 

Louis Pompeo

Member
Joined
Nov 23, 2007
Professional Status
Certified General Appraiser
State
Mariana Islands
Are you familiar with the term "picking flysh!t out of pepper"...?
 

Ken B

Thread Starter
Elite Member
Joined
Feb 18, 2004
Professional Status
Certified General Appraiser
State
Florida
I have to say that is a new one.

Not really sure under what conditions it is applicable.
 

Mike Boyd

Elite Member
Joined
Jan 18, 2002
Professional Status
Retired Appraiser
State
California
If a frog had a pocket to carry a pistol in, he wouldn't be afraid of snakes.
QUOTE

I love Terrel's coloquializms!

Just to play The Devel's Advocate.................How do ya know that there will or will not be functional depreciation without doing the market approach first?

Your personal experience?
Just an opinion but unsupported?
Prejudicial AND unsupported opinion?

An "Everybody knows that................." type an answer is not acceptable.
 
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