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:
Correct Answer
A) The effective age is inconsistent with the described condition
Why this is correct: Effective age reflects the property's condition relative to its useful life. An effective age of 10 suggests a well-maintained, updated property. The description of original wiring and kitchen and an older roof contradicts this, indicating a much older effective age. Why the other choices are wrong: Effective age can be lower than actual age with excellent updates. Roof age is relevant condition data. Specialist appraisal is not automatically required for older homes. Exam tip: The narrative in an appraisal report must be internally consistent; the condition description must align with the estimated depreciation.
Why This Is the Correct Answer
Option A is right because the stated effective age contradicts the condition the report itself describes. A reader has no way to know which statement to believe, and an intended user relying on the value opinion is relying on a number the narrative undercuts. The fix is to reconcile the two: either the effective age is wrong and should be raised toward or beyond the actual age, or the condition description is incomplete and understates updating that has in fact occurred. Consistency between the described condition and the depreciation applied is a basic test any report should pass before it leaves the office.
Why the Other Options Are Wrong
Option B: Effective age may never be lower than actual age
Effective age can absolutely be lower than actual age, and that is the normal result of thorough renovation - a 1975 house gutted and rebuilt inside may present as fifteen years old. It can also exceed actual age where a property has been neglected. The relationship runs in both directions, and a rule forbidding one of them would make effective age meaningless.
Option C: The roof age should not appear in the report at all
Component ages are exactly the kind of condition data a report should contain, because they support the effective age judgment and inform any short-lived item analysis in the breakdown method. Removing the roof age would hide the inconsistency rather than resolve it, which is the opposite of what the reporting standards require. The problem is the conclusion, not the disclosure.
Option D: Forty-year-old houses always require a specialist appraiser
Age alone does not create a competency requirement; appraisers value forty-year-old houses constantly, and most residential markets are dominated by older stock. Competency turns on property type, market, intended use, methods, and applicable law, not on a year built. This option offers a procedural evasion where the actual defect is an unsupported number.
The narrative has to earn the number
Every number in a report is a claim the narrative has to earn. Effective age ten means the words above it should read updated kitchen, updated baths, newer systems, newer roof. Original everything earns an effective age at or above actual age.
How to use: When a stem gives you both a stated effective age and a condition description, compare them directly before reading the answers. A mismatch is the defect, and options about age limits, disclosure, or specialist requirements are distractions from it.
Exam Tip
Reviewers test effective age against the described condition first because it is the cheapest inconsistency to find; build the same check into your own final read of every report.
Common Mistakes to Avoid
- -Carrying an effective age forward without testing it against the condition observed
- -Believing effective age cannot fall below actual age
- -Omitting component ages that would reveal an inconsistency
- -Treating the contradiction as a wording problem rather than a depreciation error
Concept Deep Dive
Analysis
This question tests internal consistency, which is one of the first things a reviewer checks and one of the easiest failures to spot. Effective age is a judgment about a building's condition, utility, and market acceptance expressed in years, and it drives the depreciation estimate in the age-life method. An effective age of ten on a forty-year-old house is a strong claim: it asserts that the property presents to the market like a ten-year-old home, which normally follows from substantial updating of the components that age most visibly - kitchen, baths, systems, roof, finishes. The narrative in this report says the opposite. Original wiring, an original kitchen, and a roof three-quarters of the way through a typical covering's life describe a property whose effective age should be at or perhaps above its chronological age. The two parts of the report cannot both be true, and because effective age drives the depreciation deduction, the inconsistency is not cosmetic - it materially understates depreciation and overstates the cost approach conclusion.
Background Knowledge
You need effective age as a judgment about condition, utility, and market acceptance rather than a chronological count, its role as the numerator in the age-life depreciation ratio, and the concepts of actual age, total economic life, and remaining economic life. You should also know the reporting requirement to summarize the reasoning supporting the analyses and conclusions, which is what makes an internal contradiction a reporting failure as well as a development one.
Real-World Application
A reviewer flags a report showing effective age ten on a forty-year-old home with original systems, and the recomputed depreciation at an effective age of thirty reduces the cost approach indication by tens of thousands. The appraiser had carried the effective age forward from a template without revisiting it against the inspection notes.
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:
A 45-year-old office building has undergone extensive system upgrades (HVAC, electrical, fire suppression) and interior modernization, resulting in strong tenant demand and rental rates exceeding those of newer buildings in the area. The appraiser estimates its total economic life at 65 years. Which statement best reflects the likely relationship among its chronological age, effective age, and remaining economic life?