A roof was replaced two years ago on a 30-year-old house. In a breakdown analysis this affects:
Correct Answer
B) The short-lived item's own depreciation — the roof's clock restarted
Why this is correct: In a breakdown (or observed condition) depreciation analysis, short-lived components (like roofs, HVAC) are analyzed separately based on their own effective age and remaining life. A new roof two years ago restarts its depreciation clock; it is depreciated based on its 2-year age, not the building's 30-year age. Why the other choices are wrong: 'Nothing at all, since the structure's overall age has not changed' is wrong; component-specific depreciation changes. 'The land value, which rises with improvements' is wrong; land value is separate. 'Only the external obsolescence estimate' is wrong; external obsolescence is from outside forces. Exam tip: In breakdown analysis, treat short-lived items individually. Their effective age can differ from the building's.
Why This Is the Correct Answer
Option B is correct because the new roof restarts that short-lived item's depreciation clock, so it is depreciated on two years of effective age against its own total life rather than on the building's thirty years. That is the defining feature of breakdown analysis, which tracks each short-lived component separately. The replacement reduces total accrued depreciation and therefore raises the depreciated value of the improvements. Nothing about the long-lived components changes as a result.
Why the Other Options Are Wrong
Option A: Nothing at all, since the structure's overall age has not changed
Chronological age of the structure is not what drives the calculation; effective age of each component is, and the roof's effective age changed the moment it was replaced. Claiming nothing changes would ignore a real, recent capital expenditure that a buyer would plainly value. It also confuses the building's age with the age of every part inside it.
Option C: The land value, which rises with improvements
Land value is estimated separately in the cost approach and is unaffected by the condition of the improvements sitting on it. The cost approach adds site value to depreciated improvement value precisely because the two are analyzed independently. Letting a roof replacement change land value would double count the improvement's contribution.
Option D: Only the external obsolescence estimate
External obsolescence arises from influences outside the property, such as a new highway, a shift in the local economy, or an incompatible neighboring use, and no owner action can create or cure it. A roof replacement is physical work on the improvements themselves, so it belongs to physical deterioration. Mapping a component replacement to the wrong depreciation category is the specific error this distractor tests.
Every Component Has Its Own Clock
The building has a clock, and so does every short-lived part inside it. Replace the roof and you reset the roof's clock to zero, while the foundation's clock keeps running from the original build. Breakdown analysis just means reading each clock separately instead of guessing from the one on the wall.
How to use: When a stem mentions a recently replaced component, identify it as short-lived and reset its effective age. Confirm the category is physical deterioration, not functional or external. Then check that the building's long-lived depreciation was left alone, since only the replaced item's clock moved.
Exam Tip
Watch for stems giving two different ages, one for the building and one for a component; they are testing whether you apply each age to the right depreciation line.
Common Mistakes to Avoid
- -Applying the building's overall effective age to a recently replaced component
- -Classifying a component replacement as functional or external rather than physical
- -Failing to reduce the long-lived component base by the cost of items depreciated separately
Concept Deep Dive
Analysis
This question tests how the breakdown method handles a replaced component. Breakdown analysis, sometimes called the observed condition method, disaggregates accrued depreciation into categories rather than applying a single age-life ratio to the whole building. Physical deterioration divides into curable items, meaning deferred maintenance worth fixing, and incurable items, which split further into short-lived components and long-lived components. Short-lived components are those with a remaining economic life shorter than the structure's, including roofing, HVAC, water heaters, floor coverings, and appliances, and each is depreciated on its own effective age and its own total life. When a roof is replaced, that component's effective age resets to the age of the new roof, here two years, regardless of the thirty-year-old structure surrounding it. The long-lived components, the foundation, framing, and other elements expected to last the life of the building, continue depreciating on the building's own effective age. This component-level treatment is precisely why breakdown analysis is more accurate than a single overall ratio for a property with mixed-age components.
Background Knowledge
You need to know the three categories of accrued depreciation and the subdivisions of physical deterioration into curable deferred maintenance and incurable short-lived and long-lived components. You should also know that effective age reflects condition, utility, and maintenance rather than the calendar, that it can differ across components, and that the age-life ratio for each short-lived item uses that item's own total expected life.
Real-World Application
In a cost approach on a thirty-year-old house, an appraiser depreciates the two-year-old roof on its own two years against a twenty-five-year life, applies separate effective ages to the eight-year-old furnace and the four-year-old water heater, and applies the building's effective age only to the long-lived remainder.
More Cost Approach Questions
In a cost approach for a proposed building, the appropriate cost basis is generally:
A warehouse cost $210,000 to build when the cost index stood at 105. The index is now 210. Its indicated current cost is:
The age-life method expresses depreciation as:
Market extraction of depreciation is limited by the fact that it:
Functional obsolescence caused by a deficiency is measured as curable when:
Curable physical deterioration is measured at cost to cure because:
A 2,050 sq ft dwelling is priced at $178 per square foot with a $34,000 detached garage and $21,500 of site improvements. Cost new is:
A house has three bedrooms sharing one bathroom, and adding a second bath is economically justified. This is:
Direct costs in a construction budget include:
An appraiser writes that a 40-year-old house has an effective age of 10 but describes original wiring, original kitchen and a 25-year-old roof. The report's problem is:
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