Part 12 Vocab Flashcards
What makes something functionally obsolete; the problem that results in functional obsolescence. Can be curable or incurable.
deficiency
Types of deficiency
Curable functional obsolescence:
- deficiency requiring action
- deficiency requiring substitution or modernization
diminished utility of a structure due to negative influences outside the site and generally incurable. Can be temporary or permanent. Can be measured in 2 ways: 1) through comps exposed to the same influence as the subject and pair against sales not exposed to it (preferred method when enough data) 2) capitalize the income or rent loss to the building that is attributable to the negative influence which requires a residual technique.
external obsolescence
a loss in value from defects in design.
functional obsolescence
ex: insufficient number of bathrooms, an old-fashioned kitchen, poor layout and design, inadequate heating and cooling, lack of closets, or inadequate insulation.
building components expected to have the same useful life as the entire structure
long-lived items
ex: rafters, framing studs, and foundation walls
A type of deterioration that can be curable or incurable. The slow destruction (or wear and tear) of the structural components that goes on every day, from the moment a building is completed. The process can be hastened by infestation or action of the elements. Most of this type of depreciation, if present, is tangible and observable.
physical deterioration
the estimated period during which improvements will continue to provide utility; an estimate of the number of years left in the useful duration of the structure or structural components as of the effective date of the appraisal
remaining useful life
Note: used in the breakdown method of estimating depreciation. We use actual age to calculate this.
components that have an expected useful life that is shorter than that of the entire structure.
short-lived items
ex: roof cover, boiler, carpeting, and appliances
the period of time over which a structure or component of a property may reasonably be expected to perform the function for which it was designed.
useful life
Note: used in the breakdown method to estimate physical depreciation on short-lived components
a method of depreciation used more in commercial appraisal applications but is used in residential applications as well. The total diminution in the value of a property is estimated by analyzing and measuring each cause of depreciation separately.
Breakdown Method of depreciation
A method to estimate depreciation by selecting similar improved property sales and applying the process which separates component parts from the whole, ex: the total amount of depreciation is separated from the sale price of a comparable improved property. It does not separate depreciation into categories such as physical, functional, or external. If the sale property has no observable functional or external drawbacks, the depreciation is attributed to physical deterioration.
market extraction method of depreciation
Steps:
1) selected verified comps that appear to have incurred a comparable amount of depreciation as the subject
2) adjust the sales for certain factors such as property rights conveyed, financing, etc.
3) subtract the value of the land at the time of sale from the sale price of each comp to obtain the depreciated cost of improvements.
4) estimate the cost of the improvements for each comp at the time of sale
5) subtract the depreciated cost of each improvement from the cost of the improvements to arrive at an estimate of total depreciation (a lump sum amount)
6) convert the dollar estimates of depreciation into percentages by dividing each estimate of total depreciation by cost
7) divide the percentage of depreciation by the age of the building to covert the percentage to an annual rate
Challenge Question: Pierce was given the acquisition cost of the property as $876,000 including the land. Actual age is unknown, but Pierce estimated the economic life of the building at 50 years. What is the annual percent of depreciation?
1 / 50 = 0.02 or 2% annual depreciation per year (2)
