REM 300 Lecture Notes - Lecture 17: Cbre Group, Capitalization Rate, Income Approach

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Cost approach: a prudent buyer will pay no more for a property than the cost of producing an equal property, equal property does not necessarily mean exact replica. For example, the materials used on the old property may no longer be in use, or standards may have changed: reproduction cost. The cost of construction at today"s prices to produce an exact duplicate or replica: replacement cost. Cost of construction, at current prices, of a building having a utility equivalent to the subject property, but built with modern materials and according to current standards. The cost is not the reproduction cost, which is the cost of making an exact replica. For very newly constructed buildings, reproduction cost = replacement cost. Steps in cost approach: estimate the value of the site. Estimate the site value by finding recent comparable sales of properties with structures. Determine the value of the structures using the cost approach, and.

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