A 25-year-old building has an effective age of 15 years and a total economic life of 50 years. What is the remaining economic life?
Correct Answer
B) 35 years
Remaining economic life equals total economic life minus effective age: 50 - 15 = 35 years. The actual age is not used in this calculation; effective age reflects the building's condition and utility.
Why This Is the Correct Answer
Option B (35 years) is correct because it properly applies the formula: Remaining Economic Life = Total Economic Life - Effective Age. Using the given values: 50 years (total economic life) - 15 years (effective age) = 35 years. This calculation correctly ignores the actual chronological age of 25 years, focusing instead on the effective age which better represents the building's true condition and utility.
Why the Other Options Are Wrong
Option A: 25 years
Option A incorrectly uses the actual age (25 years) instead of applying the proper formula with effective age, showing a fundamental misunderstanding of the concept.
Option C: 40 years
Option C appears to subtract the effective age from the actual age plus total economic life (75-35=40), which is an incorrect formula that doesn't follow appraisal principles.
Option D: 15 years
Option D simply states the effective age rather than calculating the remaining economic life, showing confusion between the given information and what needs to be calculated.
TEL-EA Formula
TEL - EA = REL (Total Economic Life minus Effective Age equals Remaining Economic Life). Remember: 'Tell Everyone About Remaining Economic Life' - use TEL minus EA.
How to use: When you see a remaining economic life question, immediately identify TEL (total economic life) and EA (effective age), ignore actual age, then subtract: TEL - EA = REL.
Exam Tip
Always look for effective age, not actual age, when calculating remaining economic life - the actual age is often given as a distractor.
Common Mistakes to Avoid
- -Using actual age instead of effective age in the calculation
- -Confusing remaining economic life with effective age
- -Adding instead of subtracting when applying the formula
Concept Deep Dive
Analysis
This question tests understanding of the relationship between actual age, effective age, total economic life, and remaining economic life in real estate appraisal. The key concept is that remaining economic life is calculated using effective age (which reflects the building's actual condition and functional utility) rather than chronological age. Effective age can be different from actual age due to factors like maintenance, renovations, or deterioration. The calculation is straightforward: Total Economic Life minus Effective Age equals Remaining Economic Life.
Background Knowledge
Appraisers must understand that effective age reflects a building's condition relative to its expected total economic life, while actual age is simply chronological. Total economic life represents the period over which a building is expected to contribute to property value, and remaining economic life indicates how much useful life remains.
Real-World Application
An appraiser evaluating a well-maintained 30-year-old office building might determine it has an effective age of only 20 years due to recent renovations, affecting depreciation calculations and remaining economic life estimates for income approach valuations.
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A building has an actual age of 20 years and an effective age of 15 years. If the total economic life is estimated at 60 years, what is the remaining economic life?
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