California Real Estate Broker ExaminationValuation and AppraisalEasy
An appraiser is evaluating a 15-year-old retail building. Due to recent upgrades, including a new roof, HVAC system, and modern storefront, the appraiser determines its physical condition is comparable to a 5-year-old building. This determination is an example of assessing the property's:
- AActual age
- BEconomic life
- CChronological age
- DEffective age
Show answer & explanationAnswer & explanation
Correct answer: D. Effective age
Effective age is an appraiser's estimate of the age of a property based on its condition and utility, rather than its actual chronological age. Renovations and upgrades can reduce a property's effective age.
Why the other options are wrong
- A. Actual age is the literal age of the building since its construction, which is 15 years in this scenario.
- B. Economic life is the period during which a property is expected to generate more income than the cost of its operation, not a measure of its current condition-based age.
- C. Chronological age is synonymous with actual age, referring to the literal time elapsed since construction.
Effective Age
Effective age is an appraiser's estimate of the age of a property based on its physical condition and utility, rather than its actual chronological age.
- Reflects property condition and maintenance.
- Can be less than, equal to, or greater than chronological age.
- Used in the cost approach to estimate depreciation.
Memory trick: Effective Age: How YOUNG it FEELS, not just how old it IS.