IAAO Fundamentals of Real Property Appraisal (101) Practice Test

Incurable physical deterioration refers to a decline in property condition that cannot be remedied economically or feasibly. The age-life method is particularly well-suited for assessing this type of deterioration because it considers the effective age of a property compared to its overall economic life.

Using the age-life method, appraisers estimate the remaining useful life of a property based on its current condition and compare that to the property’s total economic life. This method incorporates the effects of physical deterioration, thus capturing the impact of incurable issues on value. By essentially calculating depreciation based on the ratio of effective age to total life, this method effectively quantifies the reduction in value attributable to physically obsolete elements that cannot be economically repaired or replaced.

In contrast, other methods have different applications. The capitalization method focuses on income and is used to derive value based on income-producing properties. The sales comparison method compares similar properties that have sold recently to establish value but does not specifically address deterioration. The replacement cost method estimates the cost to replace a property with a similar one at current prices, which may not effectively account for the nuances of incurable deterioration. Therefore, the age-life method stands out as the method designed specifically to measure and incorporate incurable physical deterioration in property valuation.