Real Estate Appraisal Practice Exam

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Which of the following formulas is used with the index method to find the reproduction cost?

Present index ÷ Future index x Original cost = Present cost
Present index ÷ Index at time of construction x Original cost = Present cost
Present cost ÷ Original cost x Future index = Present index
Original cost ÷ Present index x Index at time of construction = Present cost

The correct answer is: Present index ÷ Index at time of construction x Original cost = Present cost

The formula that is used with the index method to find the reproduction cost involves taking the present index and dividing it by the index at the time of construction, then multiplying by the original cost. This approach aligns with the concept of measuring changes in value over time, factoring in inflation or cost changes in construction materials and labor. Using this method, appraisers can adjust the original cost of a property to reflect current market conditions and costs rather than relying solely on historical data. This is particularly useful when considering properties where the original cost was significantly different due to changes over time. This formula effectively recalibrates the original cost to its current value by incorporating relevant index numbers, allowing appraisers to arrive at an accurate present cost that reflects the true economic conditions of the market today.