If it were not for risks of physical depreciation
and functional obsolescence, and also the fluctuations in values due to varying housing supply and other economic factors, the relaxation of lending terms to 30 or 40 years might be safely embraced by every lender whether private or otherwise, for in an ever-expanding economy with no downward fluctuations the value of the property would always be more than the amortization of the loan.
Of the total loss in value, $500,000 is physical depreciation
, so the property suffers the balance $10,736,666 in functional or external obsolescence.
The thicker black border of Bar A represents the total reproduction cost new less physical depreciation
of a property with an existing item that has a defect that is curable.
Table 6 illustrates the analysis of physical depreciation
based on the effective ages of the permanent plantings.
For this re ason, the costs of the comparison property in the replacement cost approach, after deducting physical depreciation
and just prior to the deduction for the cost to cure, must represent a comparison plant that has an equivalent useful life for the new sorter, which the cost to cure would provide, and for the remainder of the plant.
Three steps are involved in estimating physical depreciation
by the breakdown method.
Normal age-life or physical depreciation
factors are not good indicators of depreciation for these properties.
Total value of land and improvements less physical depreciation
These improvements are new and suffer no physical depreciation
or functional or external obsolescence.