In the cost approach, what does 'replacement cost new' refer to?

'Replacement cost new' refers to the current cost required to construct a building that is functionally equivalent to the subject property, using materials and construction methods that meet contemporary standards. This concept is vital in the cost approach, as it enables appraisers to estimate the value of a property based on what it would cost to replace it with a new structure that serves the same purpose, rather than focusing on the historical costs of the original construction.

Understanding this term is essential because it incorporates current market conditions, building codes, and materials, ensuring that the estimate reflects the present-day scenario rather than outdated figures. This makes 'replacement cost new' a more reliable and relevant measure of a property's value, particularly in situations where the original building may not be representative of current construction practices or values.