Total economic life differs from remaining economic life in that total economic life:
Correct Answer
D) Spans the full period the improvements contribute value
Total economic life is the estimated whole period improvements contribute economic value; remaining economic life is the supported future portion. It differs from physical endurance and financing term. The simplified age-life identity uses effective age, not necessarily construction age.
Why This Is the Correct Answer
Option D is correct because total economic life is the period of time over which improvements contribute to property value, from start to finish. Remaining economic life is only the portion still ahead. That whole-period scope is what sets total economic life apart.
Why the Other Options Are Wrong
Option A: Is set by the property's mortgage term
Option A says total economic life is set by the property's mortgage term. A loan term is a financing arrangement and does not measure how long improvements contribute value.
Option B: Measures only the years still ahead
Option B says total economic life measures only the years still ahead. That describes remaining economic life, not total economic life, which also includes the years already used.
Option C: Equals the building's total physical durability in years
Option C equates total economic life with the building's total physical durability in years. A building can physically stand long after it stops contributing value, so economic life and physical life are different measures.
Economic life tracks value
Economic life follows the building's value contribution, not its bricks or its loan. When the value contribution ends, economic life ends.
How to use: Use this idea to rule out answers based on physical durability or financing terms.
Exam Tip
Watch for answer choices that swap total and remaining life. Total life covers the whole span; remaining life covers only what lies ahead.
Common Mistakes to Avoid
- -Confusing total economic life with remaining economic life
- -Equating economic life with physical life
- -Linking economic life to the mortgage term
Concept Deep Dive
Analysis
This question tests the definitions of total economic life and remaining economic life. Total economic life covers the whole period over which the improvements contribute to value, while remaining economic life covers only the future portion. You also need to distinguish economic life from physical life and from loan terms.
Background Knowledge
Economic life is the period during which improvements contribute to property value. It is usually shorter than physical life, because functional and external factors can end an improvement's contribution before it wears out. Remaining economic life is the estimated future period of contribution as of the effective date.
Real-World Application
An older office building is structurally sound but its layout no longer suits tenants, and similar buildings are being torn down for redevelopment. The appraiser concludes that its remaining economic life is short even though its physical life could be much longer.
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?
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Previous Question
The current cost new of the improvements is $2,400,000, with an effective age of 18 years and a total economic life of 40 years. There are no other deductions and no salvage value. What is the depreciation indicated by the straight-line age-life method alone?
Next Question
Current cost new is 2,400 sf×$175/sf with all relevant cost components included. Deduct supported total improvement depreciation $105,000, then add supported site $190,000. No further deductions apply. What cost indication results?