An improvement’s supported effective age exceeds its actual age. What does that comparison indicate?
Correct Answer
D) Greater effective aging from condition or utility than chronological age alone suggests.
A higher effective age indicates greater effective aging relative to chronological age, which can reflect neglect, accelerated wear or reduced utility. Neglect is a possible cause, not a unique fact proved by the age comparison. Purchase price alone does not establish effective age.
Why This Is the Correct Answer
Option D is correct because effective age is the age indicated by the property's condition and utility, while actual age is simply years since construction. When effective age exceeds actual age, condition or utility shows greater aging than chronological age alone suggests. Possible causes include neglect, accelerated wear or reduced utility, but the comparison does not prove which one.
Why the Other Options Are Wrong
Option A: Proof that it was recently bought at a premium.
Option A says the comparison is proof the property was recently bought at a premium. Purchase price does not establish effective age, and a premium price would not indicate greater effective aging.
Option B: It proves the improvement was recently renovated beyond its original construction specifications.
Option B says it proves the improvement was recently renovated beyond its original specifications. A renovation would tend to lower effective age, which is the opposite of an effective age that exceeds actual age.
Option C: Proof that the components use superior materials.
Option C says it is proof the components use superior materials. Superior materials would tend to slow effective aging, so this does not explain an effective age higher than actual age.
Older than it is
If effective age is higher, the building acts older than its birth year. If lower, it acts younger.
How to use: Use this to interpret any comparison between effective and actual age.
Exam Tip
Choices claiming the comparison proves a specific cause, especially one that would make the building younger, can be eliminated.
Common Mistakes to Avoid
- -Thinking a higher effective age indicates renovation
- -Linking effective age to purchase price
- -Treating the age comparison as proof of a single cause
Concept Deep Dive
Analysis
This question tests what it means when effective age exceeds actual age. Effective age is the age indicated by condition and utility, while actual age is chronological age. An effective age higher than actual age shows the improvement has aged faster than the calendar suggests, without proving any one specific cause.
Background Knowledge
Actual age is the number of years since construction, while effective age reflects condition and utility on the valuation date. Effective age above actual age signals accelerated aging, often from deferred maintenance or reduced utility. Effective age below actual age signals better than typical condition, such as from updates.
Real-World Application
An appraiser inspects a 15-year-old house with a failing roof, worn finishes and outdated systems that went unmaintained. Its condition resembles homes 25 years old, so the appraiser assigns an effective age above its actual 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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A 2,500-sf house has a current cost new of $180 per square foot. Total depreciation of the improvements is estimated at 22% of cost new, and the site is valued at $170,000. What value does the cost approach indicate?
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