California Real Estate Broker ExaminationValuation and AppraisalEasy
A commercial building is currently 10 years old. Due to superior construction quality, excellent maintenance, and recent upgrades to its HVAC and electrical systems, an appraiser determines its condition and utility are equivalent to a 5-year-old building. For appraisal purposes, the 5-year estimate represents the property's:
- ARemaining economic life
- BEconomic life
- CEffective age
- DChronological age
Show answer & explanationAnswer & explanation
Correct answer: C. Effective age
Effective age is the age a property appears to be based on its condition and utility, which can be less than its chronological age due to good maintenance and upgrades. In this scenario, the building, despite being 10 years old, functions and looks like a 5-year-old building.
Why the other options are wrong
- A. Remaining economic life is the future period over which it is expected to contribute value, not its current perceived age.
- B. Economic life is the period over which an improvement contributes value, not its current perceived age.
- D. Chronological age is the actual, historical age (10 years) of the building.
Effective Age
Effective age is the age of a property indicated by its condition and utility, rather than its chronological age. It reflects how well a property has been maintained and updated.
- Can be less than or greater than chronological age.
- Used in the cost approach to estimate accrued depreciation.
- Influenced by physical deterioration and functional obsolescence.
Memory trick: Effective Age is how 'E'legant or 'E'xhausted it 'A'ppears.