An appraiser is reviewing the cost approach for an 8-year-old dwelling with deferred maintenance. Improvement cost new is $500,000 and age-life depreciation is $120,000, based on a total economic life of 50 years. What remaining economic life does this depreciation imply?
Correct Answer
B) 38 years
Depreciation of $120,000 on $500,000 is 24%, and 24% of a 50-year life is an effective age of 12 years. Remaining economic life is then 50 − 12 = 38 years. Using actual age gives 42 years, subtracting only the 4-year gap between effective and actual age gives 46 years, and stopping at effective age gives 12 years.
Why This Is the Correct Answer
Depreciation of $120,000 on $500,000 is 24%, and 24% of a 50-year life is an effective age of 12 years. Remaining economic life is then 50 − 12 = 38 years. Using actual age gives 42 years, subtracting only the 4-year gap between effective and actual age gives 46 years, and stopping at effective age gives 12 years.
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