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Reproduction Cost

DEFINITION

Reproduction cost is the term for the cost of identically reproducing an asset or property to the same exact specifications as a property that exists but may have been altered by damage or reconstruction. Typically, reproduction cost is applied to historical buildings, to ensure that new structures have the same look and feel. Insurance companies use reproduction cost to calculate the potential risk of replacing an insured asset in the same location at current cost. The level of reproduction is assumed to be exact.

EXPLANATION

A reproduction cost is different to a replacement cost. A reproduction cost looks at the cost of recreating the subject property, while replacement cost refers to the cost to replace the property.

An example of this might be a historic building with deep maple floors and high molded ceilings that has been converted into an office space. Reproduction cost would estimate building a structure with deep maple floors and high molded ceilings in the same area. A replacement cost would look at the potential cost of building a structure with 8-foot ceilings made with ceiling tiles.

Contracts will have varying insurance coverage. Some companies may cover the value of purchasing or buidling a property identical to the one lost, while others may cover purchasing or building a similar one. It’s important to know the exact terms of insurance contracts, as these amounts can be very different.

There are two types of costs that are included in every construction cost estimate; indirect costs and direct costs. Indirect costs, or soft costs, are usually related to fees incurred by building, such as the builder’s profit, permit fees, or architectural costs. Direct costs, or hard costs, refer to the cost of actual building, like labor and building materials.

Process

The process for calculating reproduction cost brings varying factors into consideration and can be done in the following ways.

–              Square Footage. This is typically used as a starting point for many property estimate measures.The cost of construction is calculated based on multiplying the square footage of a proposed project by the typical construction costs of that particular type of structure. For example, say construction on a particular kind of house averages about $100 per square foot, and the square footage will be 2,000. That means that the cost will be about $200,000.

–              Quantity Survey. This method breaks down the cost of each portion of the property separately. This is a very detailed approach in which supplies like bricks, tape, screws, and instillation may be factored in.

–              Index Method. Know the cost to develop and then multiply this with a variable that tells the cost. These numbers are usually published by national companies that conduct this type of research.

–              Unit-In-Place. This method calculates the cost of each aspect of the proposed structure individually. Say the building process is divided into four main steps: The foundation, the cost of mechanicals, the cost of walls and finishing and the cost of roofing and framing. Each part of building is estimated separately, and then added to come up with the total estimated cost for building such a house.

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