Determine the indicated value of the property using the Modified Economic Age-Life depreciation method, accounting for curable items and adding site value plus the contributory value of site improvements.
Hints:
Subject Property — Information from the Field
Problem Variables
Indicated Value by the Cost Approach
Solve
Final Answer
Indicated Value by the Cost Approach (rounded)
Modified Economic Age-Life Solution
Step
Item
Amount
Formula
Construction cost composition
The pie chart below breaks down the entire current construction cost into four parts: the curable physical depreciation that has been deducted, the curable functional depreciation that has been deducted, the building’s loss from all causes (depreciation on the remaining undepreciated cost), and the depreciated value of the improvements. Together they sum to the current construction cost.
Current Construction Cost
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Appraisal Toolbox
Cost Approach — Modified Economic Age-Life
The Modified Economic Age-Life Method applies the basic age-life ratio to a depreciable base that has already had certain forms of depreciation removed.
The process begins by deducting the dollar amounts of curable physical deterioration and curable functional obsolescence from the current construction cost. The remainder is the “remaining undepreciated cost” — the base to which the age-life ratio will be applied.
The age-life ratio (effective age ÷ total economic life) represents the percent of useful life consumed. Multiplying this ratio by the remaining undepreciated cost yields the depreciation from all remaining causes — the loss in value attributable to incurable physical, functional, and external depreciation collectively.
Subtracting that loss from the remaining undepreciated cost gives the depreciated value of the improvements. Adding the site value and the contributory value of site improvements produces the indicated value by the cost approach.
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Video Explanation Available
Visit our YouTube channel for a brief video presentation of the modified economic age-life method.
Solution Roadmap
Flowchart for Solving This Modified Age-Life Problem
1 · Cost, Less Curable Items
Begin with the construction cost (RCN), then subtract the curable physical and functional items. The “modified” method removes those before applying age-life.
2 · Apply the Age-Life Ratio
Depreciation from all remaining causes = effective age ÷ total economic life, applied to the undepreciated remainder.
3 · Depreciated Cost of Improvements
Subtract that loss from the remainder to get the depreciated improvement value.
4 · Add Land & Site Improvements
Add the site (land) value and the contributory value of site improvements to reach the indicated property value.