Estimation of Depreciation for Single‐Family Appraisals

Abstract

Methods for the estimation of depreciation within the cost approach to appraisal of single-family residential property have been the focus of very few empirical studies. The purpose of this study is to generate empirical evidence related to one such method, specifically the age-life method. Within the context of a hedonic price model, functional form of the model and the design of the age variable are chosen so that we can test for alternative paths of depreciation with just one model. The alternative paths can be concave, convex or straight-line. Contrary to the evidence presented in several previous studies, the empirical evidence presented in this paper supports a path of depreciation for single-family houses that is concave (i.e., initially less rapid than straight-line). Of the standard paths of depreciation often suggested, the reverse sum of the years digits path most closely approximates the path indicated as appropriate by this study, particularly in the early years of the life of a house. If appraisers are looking for an approximation of the path of depreciation for single-family residences, it would appear that the reverse sum of the years digits path is much more appropriate than the straight-line path that is often assumed. Copyright American Real Estate and Urban Economics Association.

Is there an equilibrating relationship between house prices and replacement cost? Empirical evidence from Berlin

“…The rate of depreciation slows once a building has reached the age of a K . Cannaday and Sunderman (1986) were the first to use (A11) for detached houses, but they did not consider the possibility of a slowing depreciation for very old buildings. This is reasonable given the oldest house in their data set was just 26 years.…”

Inequity of land valuation in the highly developed city of Taipei, Taiwan

“…A similar relationship is expected to exist between structure value and its age; that is, the property depreciation. This relationship has been documented at least in Cannaday and Sunderman (1986) and Wolverton (1998). In addition, a variable of ownership type is especially included to account for the price premium of sites in a single ownership over those in joint ownership.…”

The Impact of Administrative Characteristics and Residential Types on Income Capitalization Rates in Taipei, Taiwan

“…Previous studies support this view (e.g. (Cannaday and Sunderman, 1986;Malpezzi et al, 1987;Smith, 2004;Geltner and Fisher, 2007).…”

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