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Estimation of Depreciation for Single‐Family Appraisals
Author(s) -
Cannaday Roger E.,
Sunderman Mark A.
Publication year - 1986
Publication title -
real estate economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.064
H-Index - 61
eISSN - 1540-6229
pISSN - 1080-8620
DOI - 10.1111/1540-6229.00386
Subject(s) - depreciation (economics) , context (archaeology) , econometrics , path (computing) , economics , estimation , empirical evidence , empirical research , path analysis (statistics) , mathematics , computer science , microeconomics , statistics , philosophy , management , epistemology , financial capital , profit (economics) , paleontology , programming language , capital formation , biology
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.