For example, if the
depreciated cost of the above-grade area was $84.10 per square foot and the below-grade cost was $25.61 per square foot, the difference would be 71.95%, which can be rounded to 72%.
Where
depreciated cost is used the profit and loss account will instead bear an annual depreciation charge.
For starters, shop for one that covers the "replacement value" of your home and its contents rather than its "cash value." Replacement value insurance will tack on as much as 15% to your premium, but it's worth it: Cash value pays back only the
depreciated cost of destroyed items--which won't be enough to replace them.
Others have suggested that the appraiser prepare another cost approach for the residential improvements of each sale and then extract the net difference in the
depreciated cost. This value would then be divided by the difference in size between the subject and the comparable sale.
* The industry audit guide Audits of Stock Lite Insurance Companies supported carrying foreclosed assets at the lower of depreciated cost or market value, net of any encumbrances.
The requirement to depreciate foreclosed assets held for sale would change net income and the asset's carrying amount, which would have been reported if the assets were not depreciated, when depreciated cost is less than fair value minus estimated costs to sell the asset.
Bar B represents the depreciated reproduction cost after deducting the three components in the four-step method, namely, the physically depreciated cost of the existing defect item, the EXCC, and the controversial component-the replacement cost new (or used) of the substitute item.
STEP 6 Since curable functional obsolescence in the four-step method equals the depreciated cost of the existing defect item plus the cost to cure, the following four-step formula can be stated:
This four-step method always fails to reflect market realities since, while appropriately deducting a depreciated cost for the existing item, it recognizes only a zero value for the replacement item which has at least the same utility as the existing item and may produce even more cash flow.
This four-step formula never works since, while it appropriately deducts the depreciated cost of the existing item, it illogically attributes zer o value to the replacement item which has at least equivalent utility and may also produce an incremental increase in cash flaw.
However, in my area (semi-cold Indiana), it is obvious that expensive inground pools built with modest housing do not return market value commensurate with physically depreciated cost new.
The problem many appraisers have when aligning sales comparison approach adjustments with depreciated cost estimates is that it removes some of the latitude, especially in keeping adjustment rates low and within those all-important secondary-market guidelines.
