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44 Cards in this Set

  • Front
  • Back
Actual age
chronological age
Age-life method
estimating depreciation with a % of either effective age / total economic life or actual age / total physical life
Age-life procedure for physical deterioration
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)
Book depreciation
accumulated or single year tax depreciation taken on a property
Breakdown method
the most detailed method of estimating depreciation, where the components of physical, functional, & external, both curable items and incurable items are estimated separately
Capitalization of rent loss
valuing a loss either functional or external by discounting expected loss to present value or dividing income by a capitalization rate
Cost to cure
$ necessary, as of the date of the appraisal to replace, repair or otherwise cure
Cost to replace
$ necessary to take an item out of a building & put a new item in
Curable physical depreciation/functional obsolescence
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
also vandalism, & the measure is the cost to cure
Deferred maintenance (items)
curable items that should be replaced or repaired as of the appraisal date
a depreciation or obsolescence item that is not good enough for market standards
loss in value due to all causes; cost minus value
Economic feasibility
in depreciation the $ to cure is offset by added value of at least that much $
Economic life
total estimate of usefulness of a building
Effective age
the age of a building based upon physical condition, funtional characteristics, and external forces as opposed to chronological or actual age
External obsolescence
loss in value due to factors outside of the improvements; generally, not curable
Funtional obsolescence
loss in value within improvements for all causes other than physical depreciation. Typical items include poor layout, design, out-of-date items, superadequacies, defieciences
Functional obsolescence procedure
cost of existing item, minus physical depreciation charged, plus cost to cure or value of the loss, minus cost if installed in new construction
Incurable physical deterioration/functional obsolescence
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
Long-lived component
an item in a building that tends to last to the end of the economic life of a building
Market extraction method
estimating depreciation by subtracting
[cost new - (sale price when sold - land value)]
Paired data analysis
estimating depreciation from matching sales that are similar except for the depreciation
Physical deterioration
loss in value within the improvements due to wear & tear
Remaining economic life
the length of time remaining of useful life of a property
Remaining useful life
the time an improvement is expected to contribute value; total life - age
Replacement cost
the cost to construct a funtionally similar building using current workmanship & materials (key: substitution); note build back in deficiencies, but not superadequacies
Reproduction cost
the cost to construct a duplicate of the improvements [Note for both reproduction & replacement cost: The costs include direct, indirect & profit]
Salvage value
the value of a component once removed from a building and sold in the market
Short-lived component
an item that tends to be replaced before the end of the economic life of a buiding
an item who's cost exceeds value the added. A superadequacy may be worth something, but less than cost
Total life expectancy
the total # of years an improvement is expected to contribute value to the site
Useful life
the total lenght of time a building is expected to contribute value
illegal damaging of property, see damage
Economic life
the period of time improvements contribute to value
Useful life
refers to the physical components of the building over which time they may contribute to the functions of the building as designed
Remaining economic life
is the time improvements should continute to contribute value
Remaining useful life
is the remaining time of a component to its useful life expectancy.
Actual age
historical or chronological age
Effective age
is indicated by its condition & utility
Methods of estimating depreciation-
Market Extraction
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 %
Methods of estimating depreciation-
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
Breakdown method
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)
Breakdown method
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