Chapter 11--COST-DEPRECIATION ANALYSIS: Reproduction Cost Estimation

The rationale for cost-depreciation analysis

*   Cost to build an acceptable substitute

*   Land costs

*   Reproduction costs

*   Accrued depreciation

*   Convenience and delay factors which constrain application of theory. (E.G. For out of town buyers, there may be insufficient time to buy a lot and build a new building.)

Theoretical basis for cost-depreciation analysis

*   Classical view--value is value of labor, later capital, land, and profit

*   Macroeconomic view of depreciation--capital consumption allowance

*   Lack of theoretical support for depreciation adjustments--What is the pattern of depreciation? Strait-line, sinking-fund, hyperbolic

Reproduction cost analysis

*   Replacement cost

*   Reproduction cost

*   The great non-debate

Highest and best use

*   The highest and best use of an improved property must have new improvements. If any detectable wear has occurred, the property would no longer be in its highest and best use.

*   Consequently, the value of any improvement in a property that is in its highest and best use must be its reproduction cost.

Methods of estimating reproduction cost

*   Quantity Survey Method

*   Unit-In-Place Cost Method

*   Comparative Unit Method

Quantity Survey Method

*   Labor

*   Materials

Unit-In-Place Cost Method

*   Major functional units

*   Much less effort as compared to quantity survey

Comparative Unit Method

*   Benchmark property

*   Most commonly used

Cost Services

*   Marshall-Swift

*   Means

*   Dodge