What is the formula for determining replacement cost new (RCN)?

The formula for determining replacement cost new (RCN) primarily involves understanding the components that contribute to the overall cost of replacing a structure. In the context of construction and appraisal, RCN is defined as the cost to construct a new building that has the same utility as an existing one, using the current materials and methods of construction.

In the formula you provided, the correct formulation is based on the idea that RCN is the sum of the direct costs (D), which include materials, labor, and other direct expenses involved in construction, combined with the indirect costs (V), which typically represent the overhead, financing, and profit typically associated with the project. Thus, RCN can be represented as the total of these direct and indirect costs.

When considering the components, RCN can be expressed as the sum of direct costs and indirect costs: RCN = D + V. This encapsulates the full picture of what it would cost to replace a property entirely as if it were new. This understanding is crucial for appraisers as they assess properties, particularly when valuing them under the replacement cost approach.

Therefore, the recognition that RCN represents a summative aspect of both direct and indirect costs explains why this is the appropriate formula to use for calculating replacement