The Age-Life Method of estimating depreciation of a structure (also called the straight line method) is the most common depreciation technique employed by residential appraisers. It is easy to use and easy to explain to a client.
Depreciation is estimated by multiplying the ratio of the Effective Age to the Economic Life by the Replacement Cost new of the subject. The underlying assumption in the Age-Life Method is that deterioration occurs at constant average annual rate.
The Actual Age is not a factor in estimating depreciation by the Age-Life Method.
Total Economic LIfe = Effective Age + Remaining Economic Life
Depreciation = Effective Age /Total Economic Life
A house has a remaining economic life of 45 years. It's effective age is 15 years. What is the percentage depreciation and dollar depreciation if cost new is $60,000.
Total Economic LIfe = 15 + 45 = 60 years
Depreciation = 15/60 = 25%
Dollar amount of depreciation = 25% x $60,000 = $15,000.