The subject property is a split-level home with no deck. A comparable sale has a 12-year-old wood deck that has been well maintained and has an effective age of 5 years. Decks of this type have a total economic life of 20 years, and a new deck of the same size and materials costs $16,000 to build today. Market data show buyers in this area pay about the depreciated cost of a deck. Using cost analysis, what amount indicates the deck's contribution?
Correct Answer
D) $12,000
Depreciation by the age-life method is effective age divided by total economic life: 5 / 20 = 25%. The deck's depreciated cost is $16,000 x (1 - 0.25) = $12,000, which market data show buyers pay. The $6,400 figure wrongly uses the 12-year actual age, $4,000 is the depreciation itself rather than what remains, and $10,667 divides effective age by remaining life instead of total life.
Why This Is the Correct Answer
Option D is correct because the age-life ratio is effective age over total economic life, 5 / 20 = 25%. Deducting that from the $16,000 cost new leaves $16,000 x 0.75 = $12,000. Market data show buyers pay about the depreciated cost, so $12,000 indicates the deck's contribution.
Why the Other Options Are Wrong
Option A: $4,000
Option A, $4,000, is the depreciation, $16,000 x 25%, not the value that remains. The contribution is cost new less that depreciation: $16,000 - $4,000 = $12,000.
Option B: $6,400
Option B, $6,400, uses the deck's 12-year actual age: 12 / 20 = 60% depreciation and $16,000 x 0.40 = $6,400. Good maintenance has reduced the effective age to 5 years, so depreciation is 25% and the contribution is $12,000.
Option C: $10,667
Option C, $10,667, divides the 5-year effective age by the 15-year remaining life, giving 33.3% and $16,000 x 0.667 = $10,667. The age-life ratio uses total economic life of 20 years: 5 / 20 = 25%, for $12,000.
Effective over total, then subtract
Effective age on top, total life on the bottom gives the share used up; cost new times the share left is the depreciated cost.
How to use: Use this whenever a feature's age, life and cost new appear together in an adjustment question.
Exam Tip
When both actual and effective age are given, the age-life method uses effective age. Check whether the question asks for the depreciation or the depreciated cost.
Common Mistakes to Avoid
- -Using actual age when effective age is given
- -Reporting the depreciation amount as the contribution
- -Dividing by remaining life instead of total economic life
Concept Deep Dive
Analysis
The question tests the difference between cost new and depreciated cost, and which age drives depreciation. A well-maintained component's effective age, not its actual age, measures how much of its life has been used. Applying the age-life ratio to cost new and keeping the undepreciated part gives the cost-based contribution.
Background Knowledge
Cost new is what it would cost to build the item today; depreciated cost deducts the loss in value from age and wear. In the age-life method, percent depreciation equals effective age divided by total economic life. Effective age reflects condition and can be lower than actual age when an item is well maintained.
Real-World Application
An appraiser notes that a comparable's deck was rebuilt with new boards and railings several years ago, so it performs like a much younger deck. The appraiser prices a new deck locally and depreciates it on its effective age to support the deck adjustment.
More Sales Comparison Questions
Supported adjustments are: non-market financing $10,000, GLA $36/sf, garage $3,500 per car, pool/spa $12,500. A comparable identical to the 2,800 sf subject sold for $267,000 with non-market financing. What is its adjusted price?
Using GLA $36/sf and non-market financing $10,000: a 3,100 sf comparable sold for $277,000 with non-market financing; the subject has 2,800 sf. Bath count differences are not adjusted. What is the adjusted price?
Using garage $3,500 per car and pool/spa $12,500: a comparable with a 2-car garage and a pool/spa sold for $268,000. The subject has a 3-car garage and no pool. What is the adjusted price?
Using GLA $36/sf, garage $3,500 per car and pool/spa $12,500: a 2,600 sf comparable with a 2-car garage and a pool/spa sold for $264,000. The subject is 2,800 sf with a 3-car garage and no pool. What is the adjusted price?
In a neighborhood with declining values and marketing times over six months, what must Fannie Mae lenders confirm about the sales comparison analysis?
A house is a 4,000 square foot home in an area of 2,000 square foot homes. How must the appraiser treat this over-improvement in the sales comparison grid?
According to the Interagency Appraisal and Evaluation Guidelines, which items should an appraisal’s market conditions discussion include?
A comparable listed at $420,000 and sold for $399,000. What sale-to-list price ratio (sale price ÷ list price) does this indicate?
An appraiser wants to describe the neighborhood boundaries in a Fannie Mae report. Which approach is acceptable?
Which of these is listed by Fannie Mae as a sales or financing concession?
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Two sets of paired sales, all on a cash-equivalent basis, are alike except for one feature in each set. Homes with and without a pool sold for $505,000 and $480,000. Homes with and without a fireplace sold for $468,000 and $456,000. The subject has both features, and a comparable that sold for $470,000 has neither. The two contributions apply to the comparable, are additive and do not overlap. What is the adjusted sale price of the comparable?