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In this video from Commercial Real Estate Explained, the topic of replacement value is discussed. Replacement value refers to the cost of reconstructing a building from scratch at current market prices. The term is often used by brokers to indicate that a building’s selling price is lower than what it would cost to build it anew. Factors such as inflation and increased expenses for labor and materials have driven up replacement costs over time. Therefore, the per square foot price of a building may appear high, but understanding replacement value can provide important context regarding its true cost and value in the market.