![]() Once you remove the land value from the sales price, the home’s depreciated cost remains.Īfter that, you look at how long it took for the home to depreciate with your depreciation percentage, you can find your total economic life.įor most of our readers, you won’t need to do the economic life math on the real estate exam, so don’t worry. That way, you develop a reliable opinion of the property’s value. Once you have a solid set of comparable sales, you deduct the land’s value from each sale’s sales price. With those properties, it’s essential to deduct depreciation or find properties similar without any depreciation. Ideally, the comparables appraisers use should be very similar in terms of age and condition. The most common method is to start by looking for some comparables. There are several ways to find economic life. How Do I Find the Economic Life Remaining Economic Life of My House? Depending on the situation and circumstance, the effective age may be more, less, or the same as the actual age. Effective Age vs Economic LifeĪppraisers take the difference between an economic life of a structure and the remaining economic life of that structure to find its effective age. Again, in that case, the appraiser may use the older age as the effective age. Suppose an appraiser analyzes a property that is 10 years old, but the owner takes poor care of the property it has the condition of a 20-year-old building. In that case, the appraiser may use the 10-year-old age as the property’s effective age. Suppose an appraiser analyzes a structure that is 20 years old, but because the owner kept excellent care of the property, it has the condition of a 10-year-old building. Sometimes actual age is also referred to as the chronological age on the real estate exam. What is Actual Age?Īctual age is pretty self-explanatory actual age is the total years that have passed since a structure was built. Using the effective age, geographic location, comparable properties, real estate market trends, and more, appraisers can accurately determine a fair price for properties. The effective age is one of the many appraisal concepts appraisers use to determine fair market value for a property. What is Effective Age?Įffective age is the age of a property based upon its utility, condition, and physical wear and tear, not its actual age. When an asset or piece of real estate is no longer valuable to its proprietor, it is said to be past its economic life. And that makes sense, right? A rundown mall still exists or has a physical life but no economic life due to something like physical deterioration. What is Economic Life?Įconomic life is the specific amount of time in which a piece of property can be put to profitable use.Įconomic life is usually less than its physical life. In this article, we define economic life, effective age, and actual age and compare the differences in terms. economic life is an essential concept to understand for real estate professionals and appraisers.
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