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INVOLVES ESTIMATION OF REPRODUCTION OR REPLACEMENT COST OF A PROPERTY LESS ACCRUED DEPRECIATION. BASED ON THE PROPOSITION THAT THE INFORMED PURCHASER WOULD PAY NO MORE THAN THE COST OF PRODUCING A SUBSTITUTE PROPERTY WITH THE SAME UTILITY AS THE SUBJECT PROPERTY. RELIABILITY IS AFFECTED BY: 1) 2) REPRODUCTION OR REPLACEMENT COST ESTIMATE OF ACCRUED DEPRECIATION. DATA.
ESPECIALLY APPLICABLE TO: SINGLE FAMILY RESIDENCES SPECIAL USE PROPERTIES SPECIAL PURPOSE PROPERTIES OR WHERE WHEN THE STRUCTURAL IMPROVEMENTS REPRESENT A MAJOR VALUE CONTRIBUTION.
CERTAIN DEFINITIONS
BOOK DEPRECIATION
AN ACCOUNTING TERM THAT REFERS TO THE AMOUNT OF CAPITAL RECAPTURE WRITTEN OFF ON AN OWNERS BOOKS. BOOK DEPRECIATION IS NOT MARKET DERIVED.
ECOMONIC LIFE
THE PERIOD OF TIME OVER WHICH IMPROVEMENTS TO REAL ESTATE CONTRIBUTE TO PROPERTY VALUE.
REMAINING LIFE
THE ESTIMATED PERIOD DURING WHICH IMPROVEMENTS CONTINUE TO CONTRIBUTE TO PROPERTY VALUE.
EFFECTIVE AGE
THE AGE INDICATED BY THE CONDITION OF A STRUCTURE.
CONTRIBUTORY VALUE
THE VALUE THAT IMPROVEMENTS CONTRIBUTE TO THE TOTAL VALUE OF A PROPERTY.
ACCRUED DEPRECIATION
DEPRECIATION - THE LOSS IN PROPERTY VALUE FROM ANY CAUSE. ACCRUED DEPRECIATION IS THE LOSS IN PROPERTY VALUE FROM: PHYSICAL DETERIORATION FUNCTIONAL OBSOLESCENCE EXTERNAL OBSOLESCENCE THE DIFFERENCE BETWEEN THE REPRODUCTION COST OR REPLACEMENT COST OF THE IMPROVEMENT AND ITS MARKET VALUE.
REPRODUCTION COST - THE COST OF CONSTRUCTION AT CURRENT PRICES OF AN EXACT DUPLICATE OR REPLICA USING THE SAME MATERIALS, CONSTRUCTION STANDARDS, DESIGN, LAYOUT, AND QUALITY OF WORKMANSHIP. REPLACEMENT COST - THE COST OF CONSTRUCTION AT CURRENT PRICES OF AN IMPROVEMENT HAVING EQUIVALENT UTILITY TO THE IMPROVEMENT BEING APPRAISED, BUT CONSTRUCTED WITH MODERN MATERIALS AND ACCORDING TO CURRENT STANDARDS, DESIGN, AND LAYOUT.
AGE-LIFE METHODS
THE PHYSICAL AGE-LIFE METHOD IS THE APPLICATION OF THE RATIO OF ACTUAL AGE TO ESTIMATED TOTAL PHYSICAL LIFE OF THE STRUCTURE. THIS METHOD IS USED TO ESTIMATE PHYSICAL DETERIORATION ONLY.
THE ECONOMIC AGE-LIFE METHOD IS THE APPLICATION OF THE RATIO OF EFFECTIVE ARE TO ESTIMATED ECONOMIC LIFE. THIS METHOD IS TYPICALLY USED TO ESTIMATE THE TOTAL DEPRECIATION, BUT MAY BE USED TO ESTIMATE INCURABLE PHYSICAL DETERIORATION.
OBSOLESCENCE
FUNCTIONAL OBSOLESCENCE - THE ADVERSE EFFECT ON VALUE RESULTING FROM DEFECTS IN DESIGN THAT IMPAIR UTILITY. CAUSED BY CHANGES OVER THE YEARS THAT HAVE MADE SOME ASPECTS OF THE STRUCTURE, MATERIAL, OR DESIGN OBSOLETE. 3) CURABLE FUNCTIONAL OBSOLESCENCE - MUST BE ECONOMICALLY FEASIBLE TO CURE. MAY BE FROM A DEFICIENCY OR AN EXCESS. 4) INCURABLE FUNCTIONAL OBSOLESCENCE - A FUNCTIONAL OBSOLESCENCE NOT PHYSICALLY OR ECONOMICALLY CURABLE. EX. BARN DOORS TOO SMALL FOR MODERN FARM EQUIPMENT. EXTERNAL OBSOLESCENCE IS THE ADVERSE EFFECT ON VALUE FROM INFLUENCES OUTSIDE THE PROPERTY ITSELF. EFFECTS BOTH LAND AND IMPROVEMENTS. USUALLY INCURABLE ON THE PART OF THE OWNER.
INDIRECT METHODS: USE OF COMPARABLE SALES WHERE THE RCN OF THE IMPROVEMENTS AS OF THE EFFECTIVE DATE OF THE APPRAISAL MINUS THE VALUE CONTRIBUTION AS OF THE SAME DATE EQUALS TOTAL ACCRUED DEPRECIATION. LIMITATIONS OF THE INDIRECT METHOD INCLUDE: AN INADEQUATE QUANTITY OF COMPARABLE SALES WITH RESPECT TO IMPROVEMENTS BEING VALUED.
THE INDICATED CONTRIBUTORY VALUE OF THE IMPROVEMENTS IS $60,000 OR 60 PERCENT OF REPLACEMENT COST NEW (RCN) THE INDICATED DEPRECIATION IS 40 PERCENT OF RCN