What does the replacement cost approach estimate when evaluating a property?

The replacement cost approach evaluates a property by estimating the cost of building a structure that serves the same purpose and provides the same utility as the original property, but does not need to be an exact replica. This method is particularly useful in assessing properties where comparable sales data might be scarce, such as unique or specialized properties. By focusing on creating a building with similar utility, this approach accounts for modern construction techniques and materials, which may result in costs that differ from the original construction.

In contrast, reproducing a historical building exactly focuses on the cost of duplicating every feature of the original structure, which is not the primary concern of the replacement cost approach. The cost of materials used in the original construction also does not capture the current expenses needed to recreate the property’s function and purpose. Lastly, the market value of the land itself is outside the scope of the replacement cost approach, which is concerned more specifically with the structures placed on that land rather than the land value alone. Therefore, the methodology of estimating costs based on utility aligns perfectly with option B.