Two identical houses were built the same year; one has been meticulously maintained, the other neglected. Their age-life analyses differ because:
Correct Answer
D) Effective age reflects condition, not the calendar
Why this is correct: The two houses have the same actual (chronological) age. Their different conditions result in different effective ages. The well-maintained house has a lower effective age, leading to less depreciation in an age-life calculation. The neglected house has a higher effective age and more depreciation. Why the other choices are wrong: 'Total economic life is longer for newer construction' is not relevant here; both houses are the same age. 'Cost new differs between maintained and neglected homes' is false; cost new is based on construction, not condition. 'Actual age is measured from the last sale date' is false; actual age is from construction completion. Exam tip: In age-life depreciation, depreciation = (Effective Age / Total Economic Life) * Cost New. Condition drives effective age.
Why This Is the Correct Answer
Why this is correct: The two houses have the same actual (chronological) age. Their different conditions result in different effective ages. The well-maintained house has a lower effective age, leading to less depreciation in an age-life calculation. The neglected house has a higher effective age and more depreciation. Why the other choices are wrong: 'Total economic life is longer for newer construction' is not relevant here; both houses are the same age. 'Cost new differs between maintained and neglected homes' is false; cost new is based on construction, not condition. 'Actual age is measured from the last sale date' is false; actual age is from construction completion. Exam tip: In age-life depreciation, depreciation = (Effective Age / Total Economic Life) * Cost New. Condition drives effective age.
More Cost Approach Questions
In a cost approach for a proposed building, the appropriate cost basis is generally:
A warehouse cost $210,000 to build when the cost index stood at 105. The index is now 210. Its indicated current cost is:
The age-life method expresses depreciation as:
Market extraction of depreciation is limited by the fact that it:
Functional obsolescence caused by a deficiency is measured as curable when:
Curable physical deterioration is measured at cost to cure because:
A 2,050 sq ft dwelling is priced at $178 per square foot with a $34,000 detached garage and $21,500 of site improvements. Cost new is:
A house has three bedrooms sharing one bathroom, and adding a second bath is economically justified. This is:
Direct costs in a construction budget include:
An appraiser writes that a 40-year-old house has an effective age of 10 but describes original wiring, original kitchen and a 25-year-old roof. The report's problem is:
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