An improvement has total depreciation of $75,000 and an effective age of 15 years. If the loss is spread in equal annual amounts, what is the average depreciation per effective year?
Correct Answer
B) $5,000
75000÷15 = 5000. Common errors: reporting the total depreciation instead of the annual amount gives $75,000; counting 14 years (dropping one end point) instead of 15 gives $5,357; counting 16 years (both end points) instead of 15 gives $4,688.
Why This Is the Correct Answer
Option B is correct because $75,000 / 15 effective years = $5,000 per effective year. Under the stated equal-annual-loss model, each effective year accounts for the same share of total depreciation. This is an average, not a prediction of actual annual market change.
Why the Other Options Are Wrong
Option A: $4,688
Option A, $4,688, comes from counting 16 years, both end points, instead of 15: $75,000 / 16 = $4,687.50, rounded to $4,688. The model associates the loss with 15 effective years, so $75,000 / 15 = $5,000.
Option C: $5,357
Option C, $5,357, comes from counting only 14 years, dropping one end point: $75,000 / 14 = $5,357.14, rounded to $5,357. The effective age is 15 years, so $75,000 / 15 = $5,000.
Option D: $75,000
Option D, $75,000, reports the total depreciation instead of the annual amount. Dividing by the 15 effective years gives $75,000 / 15 = $5,000.
Total over years
An average annual amount is the total spread evenly over the years. Divide by the number of years given, without adding or dropping a year.
How to use: Use this when a question asks for a per-year amount from a total.
Exam Tip
Divide by the number of effective years exactly as stated; answers just above or just below the correct figure usually come from an off-by-one count.
Common Mistakes to Avoid
- -Adding or dropping a year when counting the effective age
- -Reporting the total depreciation as the annual amount
- -Treating a straight-line average as an actual annual market forecast
Concept Deep Dive
Analysis
This question tests a simple average depreciation calculation under an equal-annual-loss model. Divide total depreciation by the number of effective years to get the average amount per effective year. This average does not forecast actual year-by-year market changes.
Background Knowledge
Straight-line depreciation models spread loss evenly over effective age, so the average loss per effective year equals total depreciation divided by effective age. Such averages are model results and do not show how market value actually changed in any single year. Appraisers use them as simplified tools within the cost approach.
Real-World Application
An appraiser extracts $75,000 of depreciation from a comparable sale with a 15-year effective age. Dividing gives an average of $5,000 per effective year, which the appraiser uses as a rough check against other depreciation evidence.
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?
Improvement cost new is $595,000. Separately supported improvement depreciation deductions of $48,000, $27,000 are expressly nonoverlapping and not already excluded from cost new. Add supported site value of $155,000, already reflecting any site losses. What total indicated value results?
What best supports a claimed loss from a bathroom-layout deficiency?
Improvement cost new is $1,850,000. Separately supported improvement depreciation deductions of $310,000, $620,000 are expressly nonoverlapping and not already excluded from cost new. No site is included. What depreciated improvement amount results?
Which scenario most strongly supports giving the cost approach substantial weight?
A cost total $650,000 explicitly includes $40,000 of non-realty FF&E outside the appraised real-property interest. Exclude it. Supported realty-only total depreciation is $55,000. Add site $200,000, with no overlap. What real-property cost indication results?
A 2,200-sf dwelling costs $200 per square foot, and a separate 400-sf garage costs $75 per square foot. These costs are complete and do not overlap. Both have an effective age of 15 years and a total life of 50 years, with straight-line depreciation and no salvage value. No site value or other loss is involved. What is the combined depreciated cost of the dwelling and garage?
A new feature in the improvements has a current cost of $45,000 and a market contribution of $18,000. The entire difference is due to superadequacy, with no physical or external loss and no overlap. What is the loss from the superadequacy?
An external influence causes an annual net income loss of $9,600. The capitalization rate for the loss is 8%, and no other economic factors change. What is the indicated loss in value of the whole property, before allocation between site and improvements?
People Also Study
Real Estate Market
13.6% of exam
Property Description
11.8% of exam
Land or Site Valuation
4.5% of exam
Sales Comparison Approach
16.4% of exam
Income Approach
8.2% of exam