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Estimation of Depreciation for Single‐Family Appraisals

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  • Roger E. Cannaday
  • Mark A. Sunderman

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.

Suggested Citation

  • Roger E. Cannaday & Mark A. Sunderman, 1986. "Estimation of Depreciation for Single‐Family Appraisals," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 14(2), pages 255-273, June.
    • Handle: RePEc:bla:reesec:v:14:y:1986:i:2:p:255-273
    DOI: 10.1111/1540-6229.00386
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    Cited by:

    1. Schulz, Rainer & Werwatz, Axel, 2011. "Is there an equilibrating relationship between house prices and replacement cost? Empirical evidence from Berlin," Journal of Urban Economics, Elsevier, vol. 69(3), pages 288-302, May.
    2. K. Chau & S. Wong & C. Yiu, 2005. "Adjusting for Non-Linear Age Effects in the Repeat Sales Index," The Journal of Real Estate Finance and Economics, Springer, vol. 31(2), pages 137-153, September.
    3. Chun-Chang Lee & Hsueh-Ling Fan, 2016. "The Impact of Administrative Characteristics and Residential Types on Income Capitalization Rates in Taipei, Taiwan," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 6(10), pages 602-619, October.
    4. Iqbal A. Syed & Jan De Haan, 2017. "Age, Time, Vintage, And Price Indexes: Measuring The Depreciation Pattern Of Houses," Economic Inquiry, Western Economic Association International, vol. 55(1), pages 580-600, January.
    5. Mark G. Dotzour, 1990. "An Empirical Analysis of the Reliability and Precision of the Cost Approach in Residential Appraisal," Journal of Real Estate Research, American Real Estate Society, vol. 5(1), pages 67-74.
    6. Harry L. Margulis, 1998. "Predicting the Growth and Filtering of At-risk Housing: Structure Ageing, Poverty and Redlining," Urban Studies, Urban Studies Journal Limited, vol. 35(8), pages 1231-1259, July.
    7. Rainer Schulz & Axel Werwatz, 2008. "House Prices and Replacement Cost: A Micro-Level Analysis," SFB 649 Discussion Papers SFB649DP2008-013, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    8. Cupal Martin & Sedlačík Marek & Michálek Jaroslav, 2019. "The Assessment of a Building’s insurable Value using Multivariate Statistics: The Case of the Czech Republic," Real Estate Management and Valuation, Sciendo, vol. 27(3), pages 81-96, September.
    9. Charles C. Tu, 2005. "How Does a New Sports Stadium Affect Housing Values? The Case of FedEx Field," Land Economics, University of Wisconsin Press, vol. 81(3).

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