Depreciation Estimates

Front 1

Actual age

Back 1

chronological age

Front 2

Age-life method

Back 2

estimating depreciation with a % of either effective age / total economic life or actual age / total physical life

Front 3

Age-life procedure for physical deterioration

Back 3

curable depreciation + depreciation to short-lived items (cost x age/life of each item) + long-lived physical (cost of improvements - curable physical - cost of short-lived items x age/total physical life)

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Book depreciation

Back 4

accumulated or single year tax depreciation taken on a property

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Breakdown method

Back 5

the most detailed method of estimating depreciation, where the components of physical, functional, & external, both curable items and incurable items are estimated separately

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Capitalization of rent loss

Back 6

valuing a loss either functional or external by discounting expected loss to present value or dividing income by a capitalization rate

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Cost to cure

Back 7

$ necessary, as of the date of the appraisal to replace, repair or otherwise cure

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Cost to replace

Back 8

$ necessary to take an item out of a building & put a new item in

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Curable physical depreciation/functional obsolescence

Back 9

deferred maintenance. Items that should be replaced, repaired, etc. as of the date of the appraisal; items suffering from design problems that should be replaced as of the date of the appraisal

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Damage

Back 10

also vandalism, & the measure is the cost to cure

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Deferred maintenance (items)

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curable items that should be replaced or repaired as of the appraisal date

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Deficiency

Back 12

a depreciation or obsolescence item that is not good enough for market standards

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Depreciation

Back 13

loss in value due to all causes; cost minus value

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Economic feasibility

Back 14

in depreciation the $ to cure is offset by added value of at least that much $

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Economic life

Back 15

total estimate of usefulness of a building

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Effective age

Back 16

the age of a building based upon physical condition, funtional characteristics, and external forces as opposed to chronological or actual age

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External obsolescence

Back 17

loss in value due to factors outside of the improvements; generally, not curable

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Funtional obsolescence

Back 18

loss in value within improvements for all causes other than physical depreciation. Typical items include poor layout, design, out-of-date items, superadequacies, defieciences

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Functional obsolescence procedure

Back 19

cost of existing item, minus physical depreciation charged, plus cost to cure or value of the loss, minus cost if installed in new construction

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Incurable physical deterioration/functional obsolescence

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items, short & long-lived that should not be cured as of the date of the appraisal; items suffering from design problems that should not be replaced as of the date of the appraisal

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Long-lived component

Back 21

an item in a building that tends to last to the end of the economic life of a building

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Market extraction method

Back 22

estimating depreciation by subtracting
[cost new - (sale price when sold - land value)]

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Paired data analysis

Back 23

estimating depreciation from matching sales that are similar except for the depreciation

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Physical deterioration

Back 24

loss in value within the improvements due to wear & tear

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Remaining economic life

Back 25

the length of time remaining of useful life of a property

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Remaining useful life

Back 26

the time an improvement is expected to contribute value; total life - age

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Replacement cost

Back 27

the cost to construct a funtionally similar building using current workmanship & materials (key: substitution); note build back in deficiencies, but not superadequacies

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Reproduction cost

Back 28

the cost to construct a duplicate of the improvements [Note for both reproduction & replacement cost: The costs include direct, indirect & profit]

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Salvage value

Back 29

the value of a component once removed from a building and sold in the market

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Short-lived component

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an item that tends to be replaced before the end of the economic life of a buiding

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Superadequacy

Back 31

an item who's cost exceeds value the added. A superadequacy may be worth something, but less than cost

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Total life expectancy

Back 32

the total # of years an improvement is expected to contribute value to the site

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Useful life

Back 33

the total lenght of time a building is expected to contribute value

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Vandalism

Back 34

illegal damaging of property, see damage

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Economic life

Back 35

the period of time improvements contribute to value

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Useful life

Back 36

refers to the physical components of the building over which time they may contribute to the functions of the building as designed

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Remaining economic life

Back 37

is the time improvements should continute to contribute value

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Remaining useful life

Back 38

is the remaining time of a component to its useful life expectancy.

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Actual age

Back 39

historical or chronological age

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Effective age

Back 40

is indicated by its condition & utility

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Methods of estimating depreciation-
Market Extraction

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1. Sales with similar amount of depreciation to subject
2. Adjust sales for property rights, financing, curable depreciation, but NOT market conditions because the depreciation is as of the sale date
3. Sale price - value of land = improvement value
4. Estimate cost, AS OF THE SALE DATE
5. Subtract cost - value of improvements
6. % = depreciation in $ / total cost
7. Adjust for subject
8. Subject cost x depreciation %

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Methods of estimating depreciation-
Age-life

Back 42

1. Research anticipated total life & estimated effective age of subject
2. Divide effective age by total life
3. Apply % to subject cost
4. Variation 1: known curables
a. Determine cost of curables
b. Effective age / total life (after adjusting for curables) x (cost - curable items)
c. Cost - a - b + site value = Total value
5. Variation 2: Known external obsolescence
a. If sales have external obsolescence, use the indicated economic life from sales
b. If sales DO NOT have e.o., develop age-life as though there is none & deduct e.o. as derived from the breakdown method alternatives

Front 43

Breakdown method

Back 43

1. Physcial deterioration
a. Curable (deferred maintenance) - cost to cure
b. Incurable
1) Short-lived = use schedule (cost to replace item x age/life = depreciation
2) Long-lived = cost - physical curable - COST of short-lived items x age/useful life (physical life of long-lived items)

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Breakdown method

Back 44

2. F.O.
a. deficiency vs. superadequacy
b. f.o. procedure
1) cost of existing item
2) - depreciation previously charged
3) + cost to cure, or
+ value of loss
4) - cost if installed new