Age-Life Depreciation
~11 min read · Use effective age over total economic life — and know what maintenance does to effective age.
The age-life method compresses all depreciation into one honest fraction: effective age over total economic life, times cost new. Simple, defensible, and built entirely on the appraiser's judgment of effective age — which is exactly what the exam probes.
The vocabulary
Actual (chronological) age: years since construction. Effective age: the age the property's condition and utility SUGGEST — lowered by renovation and superior maintenance, raised by neglect. Total economic life: the span improvements contribute value to the property (shorter than physical life — buildings stand long after they stop paying). Remaining economic life = total economic life − effective age: the years of contribution left, and the lender's interest in the number.
- Effective age is condition-driven, not calendar-driven
- Economic life < physical life
- REL = total economic life − effective age
The method
Depreciation = (effective age ÷ total economic life) × cost new; improvement value = cost new − depreciation; add land for the indication. It lumps ALL forms — physical, functional, external — into the single ratio, which is its convenience and its bluntness: a property with heavy curable items or measurable external loss deserves the breakdown method instead (or a modified age-life: deduct curables first, then age-life the rest with an effective age reflecting the cured state).
- One ratio captures total depreciation
- Modified version: cure first, ratio the remainder
- Breakdown method when components diverge
Judging effective age
Evidence: maintenance history, component replacement (roof, systems, kitchen vintages), market comparison with sold properties of known effective ages, and renovation scope. A 50-year-old fully renovated home may carry a 15-year effective age; a 10-year-old neglected rental may carry 20. Support the judgment in the workfile — effective age is the method's entire subjectivity concentrated in one number.
Worked example
Cost new $460,000; land $150,000. The house is 38 years old; a major 2021 renovation (roof, systems, kitchen, baths) leads the appraiser to conclude a 12-year effective age against a 60-year total economic life. Run the age-life indication — and state what the remaining economic life tells the lender.
Ratio: 12 ÷ 60 = 20%. Depreciation: 460,000 × 0.20 = $92,000. Improvement value: 460,000 − 92,000 = $368,000; plus land → $518,000 indicated. Had the appraiser used the 38-year ACTUAL age: 38/60 = 63%, depreciation $291,000, indication $319,000 — a $199,000 error from one wrong input, which is why effective age carries the method. Remaining economic life: 60 − 12 = 48 years — comfortably exceeding any 30-year loan term, the fact the lender's form actually wants. Renovation moved the age; the age moved everything.
Common exam pitfalls
Running the ratio on actual age.
Effective age — the condition-implied age — is the numerator; renovation rewinds it, neglect advances it.
Using physical life as the denominator.
Total ECONOMIC life (contribution period) governs — shorter than how long the building will merely stand.
Age-lifing past heavy curables or external loss.
The lump-sum ratio hides component stories — switch to modified age-life or the breakdown method.
Condition sets the age, economics set the life, the fraction sets the loss — and renovation turns back the only clock that counts.
Recap
- Depreciation = effective age / total economic life × cost new
- Effective age: condition-driven; renovation lowers it
- Economic life < physical life; REL = life − effective age
- Lump-sum method; modified and breakdown versions refine
- REL vs loan term is the lending question
- Support the effective-age judgment in the workfile
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