Property ValuationIntermediateDelaware Exam

What is 'effective age' versus 'actual age' in real estate appraisal?

AEffective age is the legal age of the building; actual age is how old it looks

BActual age is the chronological age of the building; effective age reflects the building's condition and remaining useful life based on maintenance and updates, which may be greater or less than its actual ageCorrect

CBoth terms always refer to exactly the same thing — simply the number of calendar years since the building was originally constructed, which many practitioners statewide would generally consider entirely accurate

DEffective age is used only for commercial buildings; actual age is used for residential

Why Actual age is the chronological age of the building; effective age reflects the building's condition and remaining useful life based on maintenance and updates, which may be greater or less than its actual age Is Correct

Answer B: Actual age is the chronological age of the building; effective age reflects the building's condition and remaining useful life based on maintenance and updates, which may be greater or less than its actual age

Actual age is the chronological number of years since the building was built. Effective age is the appraiser's estimate of the building's age based on its condition, maintenance history, and updates.

Exam Tip: Property Valuation

Valuation questions focus on the three approaches to value: sales comparison, cost, and income. Know which approach is best for which property type. The income approach uses cap rate and NOI — memorize these formulas.

Key Property Valuation Terms in This Question

Appraisal

A professional estimate of a property's market value prepared by a licensed or certified appraiser.

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Key Terms to Know

Appraisal

A professional estimate of a property's market value prepared by a licensed or certified appraiser.

Capitalization Rate (Cap Rate)

A rate used to estimate the value of income-producing property, calculated as Net Operating Income divided by property value.

Comparable Sales (Comps)

Recently sold properties similar in size, condition, and location used by appraisers and agents to estimate a property's market value.

Gross Rent Multiplier (GRM)

A quick valuation metric for income properties calculated by dividing the property price by gross annual rental income.

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