A report assigns effective age 10 to a 40-year-old home but gives only component dates and no condition/utility support for that judgment. What needs attention?
Correct Answer
A) Support the effective age with actual condition, utility and components.
The report should explain and support how the components and their actual condition and utility relate to the proposed low effective age. Component dates alone do not prove a particular effective age; maintenance, condition, utility and market evidence matter. Effective age may be lower than chronological age when supported.
Why This Is the Correct Answer
Option A is correct because effective age reflects the condition and utility of the property, so the report should support the effective age of 10 with the home's actual condition, utility and updated components. Listing component dates alone does not show how they relate to the conclusion. A supported effective age can be lower than chronological age.
Why the Other Options Are Wrong
Option B: Effective age is prohibited from being lower than chronological age.
Option B states effective age is prohibited from being lower than chronological age. That is incorrect; effective age may be lower than actual age when renovation, maintenance and condition support it.
Option C: The age of the roof may not appear in the report.
Option C says the age of the roof may not appear in the report. Component ages can properly be reported and can help support the effective age; the problem is the missing condition and utility support.
Option D: A 40-year-old home requires a structural specialist’s inspection.
Option D claims a 40-year-old home requires a structural specialist's inspection. Age alone does not create that requirement, and the issue here is unsupported effective age, not a structural concern.
Effective age shows, not tells
Effective age must be shown through condition and utility, not just told through a list of replacement dates.
How to use: Use this when reviewing whether an effective age conclusion is adequately supported.
Exam Tip
Effective age can be lower or higher than actual age. Look for the answer that ties it to condition and utility evidence.
Common Mistakes to Avoid
- -Believing effective age cannot be lower than actual age
- -Treating component replacement dates alone as proof of effective age
- -Assuming older homes need a specialist inspection because of age alone
Concept Deep Dive
Analysis
This question tests support for an effective age estimate. Effective age is the age indicated by condition and utility, so a low effective age on an older home needs explanation tied to actual condition, utility and components. Component dates alone do not establish it.
Background Knowledge
Effective age is the age indicated by the condition and utility of the improvements, and it can be higher or lower than actual age. Appraisers support it with observed condition, the extent and quality of updates, functional utility and market evidence.
Real-World Application
A reviewer reads a report on a 40-year-old home with an effective age of 10 that lists only roof and HVAC replacement dates. The reviewer asks the appraiser to describe the home's actual condition, updates and utility that justify such a low effective age.
More Cost Approach Questions
Why can equivalent-utility replacement cost be useful for an obsolete improvement?
An appraiser estimates the current replacement cost new of the improvements at $890,000, accrued depreciation from all causes at $170,000, and land value at $325,000. All necessary cost components and depreciation are included in those amounts. What is the indicated property value?
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Previous Question
The monthly gross rent loss at a property is $150, and the applicable monthly multiplier for this loss is 110. Independent evidence assigns 75% of the resulting loss to the improvements. What is the loss attributable to the improvements?
Next Question
The current cost new of the improvements is $500,000. Depreciation is estimated at 20% of that cost, and an additional improvement loss of $25,000 is measured separately and does not overlap it. The site value of $140,000 already reflects any site influences. What is the total indicated value by the cost approach?