Property Valuation
When a NJ appraiser uses the 'age-life method' to estimate depreciation in the cost approach, they calculate depreciation as:
AReplacement cost minus sales price
BEffective age ÷ Total economic life × Reproduction/Replacement cost✓ Correct
CChronological age × Annual depreciation rate
DPhysical deterioration only
Explanation
The age-life method calculates depreciation as a fraction: Effective Age ÷ Total Economic Life × Reproduction or Replacement Cost. It estimates the percentage of value lost from all forms of depreciation.
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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.
Capitalization Rate (Cap Rate)A rate used to estimate the value of income-producing property, calculated as Net Operating Income divided by property value.
Gross Rent Multiplier (GRM)A quick valuation metric for income properties calculated by dividing the property price by gross annual rental income.
Math Concepts
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