Age-life Depreciation

The Age-Life Method of estimating depreciation of a structure (also called the straight line method) is the most common depreciation technique employed by residential appraisers.  It is easy to use and easy to explain to a client.

 

Depreciation is estimated by multiplying the ratio of the Effective Age to the Economic Life by the Replacement Cost new of the subject.  The underlying assumption in the Age-Life Method is that deterioration occurs at constant average annual rate.

 

The Economic Life is the Effective Age plus the Remaining Economic Life.

 

The Actual Age is not a factor in estimating depreciation by the Age-Life Method.

 

Calculations:

 

Total Economic LIfe = Effective Age + Remaining Economic Life

Depreciation = Effective Age /Total Economic Life

 

Example:

 

A house has a remaining economic life of 45 years.  It's effective age is 15 years.  What is the percentage depreciation and dollar depreciation if cost new is $60,000.

 

Total Economic LIfe = 15 + 45 = 60 years

Depreciation = 15/60 = 25%

Dollar amount of depreciation = 25% x $60,000 = $15,000.

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