Certified Residential Appraiser Practice Exam

Which method of depreciation is rarely used due to its complexity and time consumption?

1. Market Extraction Method

2. Age-Life Method

3. Breakdown Method

4. Income Approach

The correct answer is: Breakdown Method

The Breakdown Method is often viewed as complex and time-consuming, which contributes to its rarity in practice. This method involves a detailed analysis of the various components of a property's value, assessing each component's individual contribution to the overall value and estimating depreciation for each separately. The intricacies of this method arise from the need to isolate specific elements of the property, such as the structure, materials, and site improvements, and apply different rates of depreciation based on each item's condition and remaining useful life. This granular approach demands extensive data gathering and analysis, making it more labor-intensive than other methods. On the other hand, methods like the Age-Life Method and Market Extraction Method are commonly used because they provide more straightforward calculations, relying on broader data and less individual analysis. The Income Approach is also less complex in its calculations, focusing on potential income and expenses related to the property instead. Consequently, the Breakdown Method stands out for its higher complexity and the significant time investment required, explaining its limited application among appraisers.