Depreciation models are a function of age that reflects the condition of a property and highlights the decline in asset over time. Whenever properties are remodeled, the change in condition dictates recapturing the appreciation in the asset. This is done by estimating a new age for the property referred to as effective age. However, similar to depreciation, estimating effective age is very challenging, leading to some jurisdictions avoiding its use and opting to utilize other mechanisms to calibrate cost models. Many jurisdictions that utilize effective age support the idea that its calculation lacks standard procedure and the empirical research that justifies its development is limited.
This webinar introduces a new theory on effective age and outlines a clear procedure that captures asset appreciation. Using residential sales data in Harris County, Texas, effective age models are developed for different levels of remodeled residential properties. The results of the models are tested against sales and the appraised values of unsold remodeled residential properties, and yield all acceptable levels of estimates as outlined by the International Association of Assessor (IAAO). In addition to predicting effective age, the model functions as a conversion mechanism for previously remodel properties. Yet the greatest attribute, is its ability to demonstrate consistency while resetting a wide range of conditions to a single level.