Certified Residential Appraiser Practice Exam

Which of the following methods is considered the most timely for calculating depreciation?

1. Age-Life Method

2. Market Extraction Method

3. Breakdown Method

4. Cost Approach

The correct answer is: Breakdown Method

The Breakdown Method is recognized as the most timely approach for calculating depreciation due to its focus on analyzing specific components of a property. In this method, the appraiser assesses the individual elements or improvements that make up the property, determining the depreciation of each one based on its condition, age, and potential functional obsolescence. This detailed breakdown allows for a more precise calculation of depreciation that reflects current market conditions and the specific attributes of the property. The strength of the Breakdown Method lies in its systematic approach, enabling appraisers to address changes in value and wear and tear on components directly, which can offer a clearer and more immediate understanding of depreciation than other methods might provide. It simplifies the process of identifying how much value each specific part of the property has lost over time, thus leading to an accurate total depreciation assessment without requiring extensive historical data or pricing trends. In contrast, the other methods may take longer or rely on broader assumptions that can delay conclusions, or they might not focus as directly on the specifics of the property’s current conditions. The Age-Life Method averages the useful life of the property across all components, while the Market Extraction Method uses recent sales data and comparisons, and the Cost Approach assesses total replacement cost, which can be less timely given varying market