A building constructed in 1990 has an effective age of 25 years and an estimated remaining economic life of 20 years. What is the building's estimated total economic life?
Correct Answer
B) 45 years
Total economic life equals effective age plus remaining economic life: 25 years + 20 years = 45 years. This represents the total period over which the building is expected to contribute to property value.
Why This Is the Correct Answer
Option B is correct because total economic life is calculated by adding effective age to remaining economic life. The effective age of 25 years represents how much of the building's useful life has already been consumed due to physical deterioration, functional obsolescence, and external obsolescence. The remaining economic life of 20 years represents how much useful life is left. Therefore, 25 + 20 = 45 years total economic life. This formula is fundamental to depreciation calculations in the cost approach to valuation.
Why the Other Options Are Wrong
Option A: 34 years
Option A (34 years) appears to subtract remaining economic life from effective age (25 - 20 = 5) and then add some arbitrary number, which has no basis in appraisal methodology.
Option C: 54 years
Option C (54 years) incorrectly adds the chronological age (1990 to present, roughly 34 years) to the remaining economic life (20 years), confusing chronological age with effective age.
Option D: 65 years
Option D (65 years) appears to be an arbitrary number that doesn't follow any recognized appraisal calculation method for determining total economic life.
The TEAR Formula
TEAR = Total Economic life = Effective Age + Remaining life. Think of it as 'tearing' the building's life into two parts: what's used up (effective age) and what's left (remaining life).
How to use: When you see any question about total economic life, immediately think TEAR and look for effective age and remaining economic life to add together. If given total economic life and one component, subtract to find the other.
Exam Tip
Always read carefully to distinguish between chronological age (actual years since construction) and effective age (apparent age based on condition) - the exam often includes both to test your understanding.
Common Mistakes to Avoid
- -Confusing chronological age with effective age
- -Subtracting instead of adding the two components
- -Using the wrong formula or trying to incorporate irrelevant factors like construction date
Concept Deep Dive
Analysis
This question tests understanding of the fundamental relationship between effective age, remaining economic life, and total economic life in real estate appraisal. Total economic life represents the entire period during which a building is expected to contribute value to the property, from construction through complete obsolescence. The concept is crucial for depreciation calculations in the cost approach, as it helps appraisers determine how much of a building's useful life has been consumed. Understanding this relationship is essential for accurate property valuation and depreciation estimates.
Background Knowledge
Effective age reflects the apparent age of a building based on its condition and utility, which may differ from chronological age due to maintenance, renovations, or deterioration. Total economic life is the period over which improvements contribute to property value, while remaining economic life is the period from the appraisal date until the improvements cease to contribute value.
Real-World Application
An appraiser evaluating a well-maintained 1990 office building might find it has an effective age of only 25 years (despite being 34 years old chronologically) due to recent renovations, with 20 years of remaining economic life, giving it a 45-year total economic life for depreciation calculations.
More Property Description Questions
Property zoned as R-2 typically allows for:
In the rectangular survey system, a section contains how many acres?
Which property right includes the right to receive rental income from a tenant-occupied property?
A property is located in a 100-year flood zone. This means the property has what probability of flooding in any given year?
In a metes and bounds description, the term 'metes' refers to:
People Also Study
Valuation Principles & Procedures
25% of exam
Market Analysis & Highest/Best Use
15% of exam
Appraisal Math & Statistics
15% of exam
USPAP (Ethics & Standards)
15% of exam
Report Writing & Compliance
10% of exam