What is the main limitation of the simple age-life method?
Correct Answer
D) It blends all depreciation into one straight-line ratio
Why this is correct: The simple age-life method's main limitation is that it combines all forms of depreciation (physical, functional, and external) into a single, straight-line ratio based on age. This oversimplifies situations where one type of depreciation is significantly more severe than others. Why the other choices are wrong: 'It requires detailed data that most markets cannot supply' is false; the method is popular because it uses readily available data. 'It cannot be used on residential property' is incorrect; it is commonly used for residential appraisals. 'It always understates total depreciation' is not a universal truth; it may overstate or understate depending on the property. Exam tip: For a more precise analysis of severe, specific depreciation, use the breakdown method or market extraction.
Why This Is the Correct Answer
Why this is correct: The simple age-life method's main limitation is that it combines all forms of depreciation (physical, functional, and external) into a single, straight-line ratio based on age. This oversimplifies situations where one type of depreciation is significantly more severe than others. Why the other choices are wrong: 'It requires detailed data that most markets cannot supply' is false; the method is popular because it uses readily available data. 'It cannot be used on residential property' is incorrect; it is commonly used for residential appraisals. 'It always understates total depreciation' is not a universal truth; it may overstate or understate depending on the property. Exam tip: For a more precise analysis of severe, specific depreciation, use the breakdown method or market extraction.
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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