Calculation of the Depreciation of the Property
Jul 24, 2019 Home Trading Steps
Like everything in the world, the property ages too. Although the value of land remains a major factor, the structure of the property deteriorates over time. While calculating the value of the property, the age of the construction matters to a great extent. If the construction is old, the value of the property depreciates. The cost of the land depends on various other factors.
It is important to note that while the value of land appreciates, the value of the construction depreciates. When a buyer buys an apartment, they are also buying the FSI of the land where the project was built. The resale apartments are sold at a higher price because the land is demanding its appreciation. For independent houses, it is the land that appreciates at the market value while the quality of construction depreciates.
For example, if the seller is selling the building after 10 years, then selling price of the building can be calculated by 10:60 which is 1:6. The remainder of the useful age of the construction is the actual selling price of the building. Adding the market price of the land will give you the exact selling cost of the property.
The depreciation factor might be null if the property is in the area that is in demand or if there is unavailability of the land. Another factor that can affect the cost of the property is the obsolescence factor. This stands for those elements which have become outdated like electrical wiring, plumbing, construction type, design etc.
When selling a property a seller must be mindful of the condition of the construction, market price and the area where the property is. Setting a realistic price for the property is a good way to attract potential buyers. Pricing it too high or too low will affect your sale.
Before we move further let us discuss what is depreciation of property?
Depreciation is defined as the decrease in the value of anything. Hence, depreciation of the property is the decrease in the rate of the property value. It is calculated as the factor product of the total value of the property and the age of construction. The depreciation of the property is only applicable to the constructed property and not the land. The value of the land remains benchmarked to the market value while the rate of the construction depends on the age of the building.It is important to note that while the value of land appreciates, the value of the construction depreciates. When a buyer buys an apartment, they are also buying the FSI of the land where the project was built. The resale apartments are sold at a higher price because the land is demanding its appreciation. For independent houses, it is the land that appreciates at the market value while the quality of construction depreciates.
Calculating the depreciation of the property:
On average, the life span of any construction is 60 years. to find the depreciation of the construction, take out the ratio of the years of construction and total age of the building.For example, if the seller is selling the building after 10 years, then selling price of the building can be calculated by 10:60 which is 1:6. The remainder of the useful age of the construction is the actual selling price of the building. Adding the market price of the land will give you the exact selling cost of the property.
The depreciation factor might be null if the property is in the area that is in demand or if there is unavailability of the land. Another factor that can affect the cost of the property is the obsolescence factor. This stands for those elements which have become outdated like electrical wiring, plumbing, construction type, design etc.
When selling a property a seller must be mindful of the condition of the construction, market price and the area where the property is. Setting a realistic price for the property is a good way to attract potential buyers. Pricing it too high or too low will affect your sale.
Looking for property portal?
Related Articles
-
What to do If You Have Bought A Wrong House
Dec 27, 2017 -
-
Buying or Renting a House? Get it Right First!
Aug 22, 2016 -
How You Can Be A Successful Landlord
May 28, 2016
See comments (0)
Write a comment
