11.1 Age-Life and Modified Age-Life Methods
Key Takeaways
- Straight-line (age-life) physical depreciation percent equals Effective Age ÷ Total Economic Life; dollar depreciation equals that percent times cost new of the improvements being depreciated.
- Effective age reflects condition and utility as of the effective date; actual (chronological) age is calendar years since construction—use effective age in the age-life fraction unless the stem specifies otherwise.
- Total economic life is the period over which improvements contribute to value; remaining economic life equals total economic life minus effective age when depreciation is linear and no other forms dominate.
- Modified age-life first deducts the cost to cure curable items from cost new (or applies curable depreciation separately), then applies the age-life ratio to the remaining incurable base.
- Age-life is simple and exam-friendly but assumes roughly uniform loss over life; it can understate or overstate total depreciation when functional or external obsolescence is material—use breakdown or market extraction when the stem supplies those facts.
Where Age-Life Fits in the Cost Approach
AQB Content Area V — Cost Approach (ECO effective April 1, 2026) weights about 12 items (10.9%) at Certified General, 15 items (13.6%) at Certified Residential, and 10 items (9.1%) at Licensed Residential. After you can build cost new (direct, indirect, entrepreneurial incentive; reproduction vs replacement), you must estimate accrued depreciation—loss in value from cost new as of the effective date.
ECO V.f Methods of estimating depreciation lists three families:
- Age-life and modified age-life (this section)
- Breakdown (itemized physical, functional, external)
- Market extraction (depreciation from comparable sales)
The cost-approach skeleton is always:
Indicated value (cost approach) = Site value + (Cost new of improvements − Accrued depreciation)
Age-life methods estimate all or most of that depreciation with a life fraction. They are the workhorse of residential National Exam math because the arithmetic is clean and the stems usually hand you effective age and economic life.
Core Vocabulary
| Term | Definition | Exam use |
|---|---|---|
| Actual age (chronological age) | Years since original construction (or major rebuild if the stem restarts the clock) | Rarely the numerator by itself if condition differs from age |
| Effective age | Age indicated by condition and utility relative to a new improvement of similar utility | Numerator of the age-life ratio |
| Total economic life | Period over which improvements are expected to contribute to property value | Denominator of the age-life ratio |
| Remaining economic life | Period of remaining contribution | Often Total economic life − Effective age under linear age-life |
| Physical life | How long the structure can stand with maintenance | May exceed economic life; economic life drives value |
| Cost new | Reproduction or replacement cost of the improvements being depreciated (as of effective date) | Multiplied by depreciation percent |
Effective age vs actual age (must-know):
- Well-maintained 40-year-old house may have effective age 25 (younger than actual).
- Neglected 15-year-old house may have effective age 25 (older than actual).
- Remodel can reduce effective age without changing chronological age.
Exam tip: If the stem gives both ages and does not specify, the age-life formula uses effective age unless it explicitly says to use chronological age.
Straight-Line (Age-Life) Formula
Depreciation percent = Effective age ÷ Total economic life
Dollar depreciation = Depreciation percent × Cost new
Depreciated cost of improvements = Cost new − Dollar depreciation
(or Cost new × Remaining economic life ÷ Total economic life)
| Symbol | Meaning |
|---|---|
| EA | Effective age |
| TEL | Total economic life |
| REL | Remaining economic life (often TEL − EA) |
| CN | Cost new |
Percent good (sometimes tested) = REL ÷ TEL = 1 − (EA ÷ TEL).
Worked problem 1 — Basic residential age-life
Facts: Replacement cost new of house and site improvements = $320,000. Effective age = 20 years. Total economic life = 50 years. Site value = $90,000. No separate functional or external obsolescence stated.
- Depreciation % = 20 ÷ 50 = 0.40 (40%)
- Dollar depreciation = $320,000 × 0.40 = $128,000
- Depreciated improvements = $320,000 − $128,000 = $192,000
- Cost-approach indication = $90,000 + $192,000 = $282,000
Check via percent good: REL = 50 − 20 = 30; percent good = 30/50 = 60%; $320,000 × 0.60 = $192,000. Same result.
Worked problem 2 — Effective age younger than actual
Facts: Actual age 35 years; recent renovation reduces effective age to 18. TEL = 60 years. RCN = $450,000. Land = $150,000.
- Depreciation % = 18 ÷ 60 = 30%
- Depreciation $ = $450,000 × 0.30 = $135,000
- Depreciated improvements = $315,000
- Cost approach = $150,000 + $315,000 = $465,000
Trap: Using actual age 35/60 = 58.3% depreciation would overstate loss and understate value after renovation. The market cares about utility today, not the building permit date alone.
Worked problem 3 — Effective age older than actual
Facts: House built 12 years ago; deferred maintenance and poor updates → effective age 22. TEL = 55. RCN = $280,000. Land = $70,000.
- Depreciation % = 22 ÷ 55 = 40%
- Depreciation $ = $280,000 × 0.40 = $112,000
- Depreciated improvements = $168,000
- Cost approach = $238,000
Worked problem 4 — Site improvements with different lives
Sometimes the stem separates building and site improvements (driveway, fencing, landscaping) with different economic lives.
| Component | Cost new | EA | TEL | Dep % | Dep $ | Depreciated |
|---|---|---|---|---|---|---|
| Building | $300,000 | 25 | 50 | 50% | $150,000 | $150,000 |
| Site improvements | $40,000 | 10 | 20 | 50% | $20,000 | $20,000 |
| Total improvements | $340,000 | — | — | — | $170,000 | $170,000 |
Land $100,000 → cost approach = $100,000 + $170,000 = $270,000.
Do not force one blended age-life on mixed components when the stem gives separate lives—apply each fraction to its own cost base.
Modified Age-Life Method
Modified age-life recognizes that some depreciation is curable (cost to cure ≤ value added, economically feasible to fix now) and should be treated before the long-life age-life ratio is applied to the remaining base.
Conceptual sequence
- Estimate cost new of improvements (RCN or reproduction as appropriate).
- Identify curable physical deterioration and/or curable functional obsolescence; measure cost to cure (and confirm curability).
- Deduct curable items (cost to cure) from cost new or subtract them as a separate depreciation line so they are not also fully “aged” again incorrectly.
- Estimate effective age and total economic life applicable to the remaining (generally incurable) improvement base after cures are recognized.
- Apply age-life to that remaining base: (EA ÷ TEL) × remaining cost base.
- Total depreciation = curable amount + age-life amount on remainder (+ any other forms if the stem adds them).
- Depreciated cost = Cost new − Total depreciation.
Textbook wording varies slightly (some deduct cost to cure from RCN to get an “as-repaired” cost base, then age-life the incurable portion). On the exam, follow the stem’s arithmetic path; the principle is: do not double-count curable loss inside a crude age-life percent applied to full RCN without removing the curable slice first.
Worked problem 5 — Modified age-life (classic)
Facts:
- Replacement cost new: $400,000
- Curable physical items (roof, paint, floor coverings): cost to cure = $25,000 (curable; value added ≥ cost)
- After curing those items, effective age of the structure = 20 years; total economic life = 50 years
- Land value: $100,000
Step A — Curable depreciation: $25,000
Step B — Cost base for age-life (incurable / remaining):
$400,000 − $25,000 = $375,000
Step C — Age-life on remaining base:
20 ÷ 50 = 40%; 0.40 × $375,000 = $150,000 incurable (age-life) depreciation
Step D — Total depreciation:
$25,000 + $150,000 = $175,000
Step E — Depreciated improvements:
$400,000 − $175,000 = $225,000
Step F — Cost approach:
$100,000 + $225,000 = $325,000
Contrast — Naive age-life without modification (trap)
If a candidate ignored curable treatment and applied 20/50 to full $400,000:
- Depreciation = 0.40 × $400,000 = $160,000
- Depreciated improvements = $240,000
- Cost approach = $340,000
That overstates depreciated cost relative to modified age-life when curable items should be removed first and the effective age already assumes post-cure condition—or, depending on how EA was estimated, can double-count or miscount. The exam’s preferred path when it lists curable cost to cure and EA/TEL is the modified sequence above.
Worked problem 6 — Curable plus age-life with different numbers
RCN $520,000; curable deferred maintenance $18,000; after cure, EA = 15, TEL = 60; land $130,000.
| Step | Calculation | Result |
|---|---|---|
| Curable | Given | $18,000 |
| Remaining base | $520,000 − $18,000 | $502,000 |
| Age-life % | 15 ÷ 60 | 25% |
| Age-life $ | 0.25 × $502,000 | $125,500 |
| Total depreciation | $18,000 + $125,500 | $143,500 |
| Depreciated improvements | $520,000 − $143,500 | $376,500 |
| Cost approach | $130,000 + $376,500 | $506,500 |
Worked problem 7 — When modified age-life is preferred
Use modified age-life when:
- Stem separates curable cost to cure from long-term wear
- Immediate repairs would change condition rating / effective age
- You must avoid applying a long life fraction to dollars that will be spent now to restore short-lived components
Stay with simple age-life when:
- Stem gives only EA, TEL, and a single cost new with no curable list
- All depreciation is treated as a uniform life fraction (common short MCQ)
Remaining Economic Life Links
Under linear age-life:
REL = TEL − EA
Depreciation % = 1 − (REL ÷ TEL)
Example: TEL 50, REL 30 → EA 20 → dep 40%. Same as EA/TEL.
If a stem gives remaining economic life and total economic life but not effective age, you can still compute percent good = REL/TEL and depreciation = 1 − percent good.
Example: RCN $200,000; REL 35; TEL 50 → percent good 70% → depreciated cost $140,000.
Age-Life vs Other Depreciation Forms
Simple age-life is often treated as estimating physical depreciation (or total depreciation when the market’s loss is roughly age-driven). It is a poor sole method when:
- Major functional obsolescence (bad floor plan, superadequacy) exists beyond age
- External obsolescence (highway noise, oversupply, plant closure) hits value
- Economic life assumptions are unsupported
| Situation | Better lean | |---|---|---| | Typical house; condition consistent; no special obsolescence | Age-life or modified age-life | | Itemized curable + incurable physical + FO + EO given | Breakdown | | Several improved sales with known land and cost new | Market extraction of total depreciation | | New or nearly new; little accrued loss | Age-life % near zero; cost approach strong |
Common Exam Traps
- Using actual age when effective age is given and appropriate.
- Forgetting land is not depreciated in the cost approach (depreciate improvements only).
- Applying age-life to land + building total cost.
- Mixing percent and dollars (40% of $300,000 is $120,000, not $40,000).
- Skipping modified sequence when curable cost to cure is listed with EA/TEL.
- Treating physical life as total economic life when the stem distinguishes them (building may stand 80 years but be economically done at 50).
- Double-counting: deducting full roof cost as curable and still using an effective age that already assumes a new roof without adjusting the story—read how the stem defines EA.
Numeric Drill (Cover Answers)
D1. EA 12, TEL 40, RCN $360,000. Depreciation $?
→ 12/40 = 30%; 0.30 × $360,000 = $108,000.
D2. After $12,000 curable cures, remaining base $288,000; EA 24; TEL 48. Age-life $? Total dep $?
→ 24/48 = 50%; age-life = $144,000; total dep = $12,000 + $144,000 = $156,000.
D3. REL 28, TEL 70, RCN $210,000. Depreciated cost?
→ Percent good 28/70 = 40%; $84,000 depreciated cost; depreciation $126,000.
Bridge to Breakdown and Extraction
Age-life gives a fast total (or physical) depreciation indication. ECO still expects breakdown when items must be classified as physical, functional, or external, and market extraction when sales reveal how much total depreciation the market actually deducts. Master the EA/TEL fraction and the modified curable-first path—then the next section builds the full depreciation inventory and sale-based totals.
A dwelling has a replacement cost new of $350,000, an effective age of 15 years, and a total economic life of 50 years. Site value is $80,000. Using the age-life method with no other depreciation stated, what is the indicated value by the cost approach?
Replacement cost new is $500,000. Curable physical deterioration (cost to cure) is $30,000. After those cures, effective age is 20 years and total economic life is 50 years. Under the modified age-life method, total depreciation is closest to: