How is "replacement cost" defined in market valuation?

In market valuation, "replacement cost" is defined as the cost to build a new structure that provides the same utility as the subject property, using current materials and construction methods. This definition emphasizes the focus on functionality and utility, rather than merely replicating the exact characteristics of the existing structure. The concept is vital for appraisers as it helps determine the value of a property based on what it would cost to replace it with something that serves the same purpose, at today's prices.

This approach is particularly useful in situations where the original property might not be a perfect replica in the current market, yet still provides the same overall utility to its users. It allows appraisers and stakeholders to understand the intrinsic value of a property based on its capacity to fulfill specific roles or needs in the market.