Calculating Remaining Economic Life

[sccracing]

Hello all, I've been asked a question about calculating remaining economic life with the following information provided and would like input: market value of $160,000, site value of $30,000, actual age 20 years, effective age of 10 years, and replacement cost of $170,000.

Answers are : 65, 56, 75, and 85

Any thoughts? Thanks again.

 

[George Hatch]

The (conventional) formula in the beginning texts is

Total Economic Lifespan
- Effective Age
Remaining Economic Life

You can't get to the remainder with just the effective age. You also need the overall economic life from which to subtract the effective age.

 

[Meandering]

Hello all, I've been asked a question about calculating remaining economic life with the following information provided and would like input: market value of $160,000, site value of $30,000, actual age 20 years, effective age of 10 years, and replacement cost of $170,000.

Answers are : 65, 56, 75, and 85

Any thoughts? Thanks again.

 

[Zephyr999]

View attachment 36396

Winner..winner!

 

[Terrel L. Shields]

@Marion Rhodes may not like the cost approach, but she knows how to do it

 

[Meandering]

@Marion Rhodes may not like the cost approach, but she knows how to do it

Lots of things I don't like but still have to do.



Just not a fan of straight line depreciation for real estate as it ignores cyclical markets.

.

 

[Elliott]

But.....if this puppy is only depreciating $2000 per year and it costs $170,000, then won't it take 85 years for it to turn to dust? My market has neighborhoods with homes routinely over 100 years.....with remaining lives of 50 years. What?! Maybe the CA is for teaching and test questions, not for using in daily appraisal practice.

 

[Meandering]

But.....if this puppy is only depreciating $2000 per year and it costs $170,000, then won't it take 85 years for it to turn to dust? My market has neighborhoods with homes routinely over 100 years.....with remaining lives of 50 years. What?! Maybe the CA is for teaching and test questions, not for using in daily appraisal practice.

Exactly correct.

It is for teaching and testing.

If there is a 2% change in the market due to falling prices, lack of people building new homes, increased expenses for wood, windows and insulation due to trade tariffs, this impacts the remaining economic life and the appraiser has to explain where those "other years" went.





Property owners will be screaming about where their 10 years of remaining life went.

So real world,

Only use this method for a property you expect to appraise one time, and never again.

.

.

 

[Meandering]

But.....if this puppy is only depreciating $2000 per year and it costs $170,000, then won't it take 85 years for it to turn to dust?

That would be the total life, if the property was new,
but this question states the home is already 20 years old.

so you calculated total life as 85 years
minus the actual age of 20 years
still gives you a remaining life of 65 years.
(George method)
Otherwise listed on charts as age/life


.

 

[Terrel L. Shields]

with remaining lives of 50 years. What?! Maybe the CA is for teaching and test questions, not for using in daily appraisal practice.

Wrong, REL and TEL are moving targets in reality. The premise is that if absolutely nothing is done to maintain and update those houses, then remaining life is short.

Those 100 year old homes here often had original plumbing, electrical (if even in the original house) , roofing etc that is long gone. Not many houses don't get some major repair every few years. Therefore each house addition, upgrade and repair decreases effective age and increases TEL.