Two similar same-age improvements differ materially in condition and utility. Why may their age-life depreciation differ?
Correct Answer
D) Their supported effective ages can differ.
When construction scope and actual ages are comparable, different condition and utility can produce different effective ages in age-life analysis. Cost new must still be matched by scope; it is not measured from last sale date. Maintenance affects supported depreciation rather than resetting chronology.
Why This Is the Correct Answer
Option D is correct because effective age is the age indicated by the condition and utility of the property. Buildings with the same actual age can vary widely in condition, so their supported effective ages, and therefore their age-life depreciation, can differ.
Why the Other Options Are Wrong
Option A: Actual age begins at each owner’s purchase.
Option A claims actual age begins at each owner's purchase. Actual age is measured from construction, not from when an owner bought the property, so a sale does not reset it.
Option B: Same-age buildings must have identical depreciation.
Option B claims same-age buildings must have identical depreciation. Depreciation in age-life analysis depends on effective age, which reflects condition and utility, so same-age buildings can depreciate differently.
Option C: Cost new is defined as the last sale price.
Option C claims cost new is defined as the last sale price. Cost new is the current cost to build the improvement, not a past sale price, and it has no bearing on why depreciation differs.
Effective Age Looks, Not Birthdays
Actual age is the building's birthday; effective age is how old it looks and works. Depreciation follows the looks, not the birthday.
How to use: Use this when a question compares buildings of the same actual age.
Exam Tip
When two properties share an actual age but differ in condition, expect the answer to involve effective age.
Common Mistakes to Avoid
- -Using actual age instead of effective age in age-life depreciation
- -Believing a sale resets the age of an improvement
- -Assuming identical depreciation for buildings of the same age
Concept Deep Dive
Analysis
This question tests the meaning of effective age. Two buildings of the same actual age can have different condition and utility, which leads to different effective ages. Since age-life depreciation uses effective age, their depreciation can differ.
Background Knowledge
Actual age is the number of years since construction, while effective age reflects the condition and utility of the improvement as the market perceives it. Good maintenance can lower effective age below actual age, and poor upkeep can raise it.
Real-World Application
Two 30-year-old tract homes sit on the same street. One has a new roof, updated systems and a remodeled kitchen, while the other has deferred maintenance, so the appraiser assigns a lower effective age to the first home.
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?
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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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