A building has an actual age of 15 years but an effective age of 10 years due to excellent maintenance. If the total economic life is 50 years, what is the remaining economic life?
Correct Answer
B) 40 years
Remaining economic life is calculated using effective age, not actual age. Total economic life (50 years) minus effective age (10 years) equals remaining economic life of 40 years.
Why This Is the Correct Answer
Option B is correct because remaining economic life is calculated by subtracting effective age from total economic life. The building's effective age is 10 years due to excellent maintenance, even though it's actually 15 years old. Using the formula: Total Economic Life (50 years) - Effective Age (10 years) = Remaining Economic Life (40 years). The actual age is irrelevant for this calculation since effective age better represents the property's true condition.
Why the Other Options Are Wrong
Option A: 35 years
This incorrectly uses actual age (15 years) instead of effective age (10 years) in the calculation, resulting in 50 - 15 = 35 years
Option C: 45 years
This appears to subtract only 5 years from total economic life, possibly confusing the difference between actual and effective age (5 years) with the proper calculation
Option D: 50 years
This suggests no depreciation has occurred, ignoring both actual and effective age entirely
TREE Method
Total minus Remaining equals Effective (T - R = E, rearranged as R = T - E). Think of a TREE: the Total trunk minus the Effective rings used equals the Remaining rings left to grow.
How to use: When you see remaining economic life questions, immediately identify the Total economic life and Effective age (not actual age), then apply R = T - E to solve
Exam Tip
Always look for the effective age in the problem statement and ignore actual age when calculating remaining economic life - the key phrase 'due to excellent maintenance' signals that effective age differs from actual age
Common Mistakes to Avoid
- -Using actual age instead of effective age in calculations
- -Confusing remaining economic life with remaining physical life
- -Forgetting that good maintenance can make effective age less than actual age
Concept Deep Dive
Analysis
This question tests the fundamental concept of remaining economic life calculation in real estate appraisal, specifically the critical distinction between actual age and effective age. Effective age reflects the apparent age of a property based on its condition and maintenance, which can differ significantly from chronological age. The remaining economic life calculation always uses effective age because it represents the property's functional condition rather than just time elapsed. This concept is essential for depreciation calculations and determining a property's future utility.
Background Knowledge
Effective age represents the apparent age of a property based on its physical condition, maintenance, and functionality, while actual age is simply chronological time since construction. Total economic life is the estimated period over which a property can be expected to contribute to property value, and remaining economic life is calculated using effective age to reflect the property's true condition.
Real-World Application
An appraiser evaluating a well-maintained 20-year-old office building might determine it has an effective age of only 12 years due to recent renovations and excellent upkeep, significantly affecting depreciation calculations and the property's remaining useful life for investment analysis
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