Question

81. A property has a replacement cost new of $350,000. It has an effective age of 20 years and a total expected economic life of 65 years. There are curable items totaling $45,000. If they are cured, it will reduce the effective age to 15 years. What is the value of the building on a modified age-life basis? A. $204,537 b. $215,635 c. $227,024 d. $234,615

Answer 1

D) $234,615

Explanation:

value of the building = replacement cost - [(effective age / total economic life) x replacement cost]

• replacement cost = $350,000 - repair costs = $350,00 - $45,000 = $305,000
• effective age = 15 years after repairs
• total economic life = 65 years

= $305,000 - [(15/65) x $305,000] = $305,000 - $70,385 = $234,615

The age-life method is a very common way to appraise a house or building, and it uses the effective age/useful life to determine the depreciation amount of the property. In this case, the property lost 15/65 of its value due to depreciation.