Property Valuation
What is 'effective age' versus 'chronological age' in real estate appraisal?
AA. They are identical concepts; appraisers use them interchangeably
BB. Chronological age is the actual years since construction; effective age reflects the property's condition and utility relative to expectations for its age—a well-maintained property may have an effective age younger than its chronological age✓ Correct
CC. Effective age considers legal restrictions; chronological age does not
DD. Chronological age is used for tax purposes; effective age for insurance purposes
Explanation
Chronological age is simply the calendar years since the building was constructed. Effective age reflects the property's actual condition—a renovated home built 40 years ago may have an effective age of 15 years due to improvements.
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Key Terms to Know
Depreciation
A reduction in the value of an improvement (building) over time due to physical deterioration, functional obsolescence, or external factors.
AppraisalA professional estimate of a property's market value prepared by a licensed or certified appraiser.
Comparable Sales (Comps)Recently sold properties similar in size, condition, and location used by appraisers and agents to estimate a property's market value.
Debt-to-Income Ratio (DTI)A lender's measure of a borrower's monthly debt obligations relative to their gross monthly income, used to evaluate loan eligibility.
Math Concepts
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