In real estate appraisal, replacement cost is the estimated cost of constructing a substitute property that is either identical to or provides equal utility to the subject property. It reflects what it would cost, at current prices, to replace the property’s usefulness.
Replacement cost is a key component of the cost approach to value and is based on current construction costs for labor, materials, and design. It is often distinguished from reproduction cost, which refers to the cost of creating an exact duplicate of the original improvement.
