Economic Life – Effective Age = Remaining Economic Life . These relationships become useful when we understand that Economic Life is a specification in the same cost data that we use to calculate current replacement cost. Examples: In the cost data we license, a Q4 house has an Economic Life of 60 years.
How do you calculate economic life?
The time that would do that is known as its economic service life (also called its minimum cost life) and it is found by calculating the asset’s annual worth over various time periods and selecting the time that corresponds with the lowest AW value .
What is the total economic life of a house?
When a new home is built it is given an economic life, depending on the type of construction, which can vary from superior to average. The typical economic life of a home is 60 years . This means that if you move in and do nothing at all to the home — no repairs or maintenance — it will last you about 60 years.
How is age-life method calculated?
The formula for the age-life method is the “effective age divided by the total economic life, times the total replacement cost new of the improvements .” This is the easiest and most often used method to estimate physical deterioration.
Where is the remaining economic life on a condo appraisal?
The estimated remaining economic life must be provided in the cost approach section of the appraisal report. For condominium units, the estimated remaining economic life must be provided in the “Reconciliation” section of the appraisal report .
What is the economic life?
Economic life is the expected period of time during which an asset remains useful to the average owner . When an asset is no longer useful to its owner, then it is said to be past its economic life. The economic life of an asset could be different than its actual physical life.
What is the economic service life?
The “economic service life” is the useful life of a defender, or a challenger, that results in the minimum equivalent annual cost of owning & operating the asset . Why do we need it?: Any defender & challenger comparison should be based on their respective economic service lives.
What is economic rent example?
For example, your economic rent is the amount of money that makes you get out of bed in the morning . ... The value may vary depending on the demand for your skills and your own inclinations about work, but your economic rent is usually equivalent to the salary and compensation you are willing to accept to do a job.
What is the effective age?
Effective age is defined as the estimate of the age of a structure based on its utility and physical wear and tear . ... The effective age can be looked at as the estimate of the age of a structure not only based on the utility, but also the physical condition.
What is an economic obsolescence?
Economic obsolescence (EO) is the loss of value resulting from external economic factors to an asset or group of assets . EO is often encountered in valuation work performed for financial reporting purposes, bankruptcy emergence and in other practice areas when dealing with companies in capital-intensive industries.
What is age-life method?
The Age-Life Method of estimating depreciation of a structure (also called the straight line method) is the most common depreciation technique employed by residential appraisers. ... Depreciation is estimated by multiplying the ratio of the Effective Age to the Economic Life by the Replacement Cost new of the subject.
What is the straight line method?
Straight line basis is a method of calculating depreciation and amortization , the process of expensing an asset over a longer period of time than when it was purchased. It is calculated by dividing the difference between an asset’s cost and its expected salvage value by the number of years it is expected to be used.
What is breakdown method?
In appraisal, the process of dividing depreciation into separate components , assigning a weight to each one, and then arriving at a depreciated value of the property. Physical depreciation. ...
What is the difference between effective age and economic life?
The Effective Age is the estimate of the age of a structure based on its utility and physical wear and tear. The effective age is the difference between the Economic Life of the structure and the Remaining Economic Life of the structure. The appraiser considers effective age in any appraisal.
Who requires an estimate of remaining economic life?
The Appraiser must state the remaining economic life as a single number or as a range for all property types, including condominiums. The Appraiser must provide an explanation if the remaining economic life is less than 30 years.
What is cost to cure?
The cost to cure approach is one used by appraisers to address damages when only part of a property is being acquired for a roadway or similar project. The cost to cure put simply, determines the cost to restore a property and “cure” the damages that result from the partial acquisition .
