Here Is How to Calculate Property Depreciation
Jun 01, 2017 Home Trading Steps
The age of real estate properties has an age limit like everything else. While the price of lands keeps appreciating through the years, the state of its construction keeps decreasing. While selling the property the age of construction plays an important part just like the location of the property and its value.
Let’s first discuss the depreciation of the property
The decrease in the selling price of the property is the depreciation of the property. It is calculated as the factor in determining the value of the property along with the state of the construction. The important thing to keep in mind is that the depreciation of the property is solely based on the state of the construction. The depreciation of the property is based on the age of the construction. While the price of the land keeps on increasing with the time, the total life of construction is calculated on the basis of its total life and the age of construction. When the price of the land appreciates the construction of the property depreciates. When a buyer invests in the apartment, he also buys the FSI of the land on which it is constructed. This is the reason why the flats are sold at higher prices than the buying cost because the building in which the apartment is built is demanding the appreciation of the land. While for the independent houses, the price of the land increases as the construction cost decreases.
How to calculate the price depreciation?
On an average, the life span of the construction of the property is 60 years. To calculate the depreciation of the building, take the ratio of the number of years of the construction to total age of the construction. For example, a seller wants to sell the property he built 15 years back. The total depreciation would be 15:60 which is 1:4.
This would be the actual selling price of the construction. Add this to the price of the property to find the reasonable cost for selling the property.
The depreciation factor is proving null or void if the land or area in which the property is built is in big demand. Another factor which affects the cost of the property is the construction type, the state of electrical fittings, plumbing. If the buyer will have to renovate or make a major repair in the building then it will affect the cost of the building. It is better to price the building in the reasonable selling price.
If you are going to buy a property that was constructed quite sometime back and it needs major renovation and fixations, then it is better to negotiate the cost. The seller should keep in mind that the buyer will have to spend atleast 5 percent on the renovation of the property.
Let’s first discuss the depreciation of the property
The decrease in the selling price of the property is the depreciation of the property. It is calculated as the factor in determining the value of the property along with the state of the construction. The important thing to keep in mind is that the depreciation of the property is solely based on the state of the construction. The depreciation of the property is based on the age of the construction. While the price of the land keeps on increasing with the time, the total life of construction is calculated on the basis of its total life and the age of construction. When the price of the land appreciates the construction of the property depreciates. When a buyer invests in the apartment, he also buys the FSI of the land on which it is constructed. This is the reason why the flats are sold at higher prices than the buying cost because the building in which the apartment is built is demanding the appreciation of the land. While for the independent houses, the price of the land increases as the construction cost decreases.
How to calculate the price depreciation?
On an average, the life span of the construction of the property is 60 years. To calculate the depreciation of the building, take the ratio of the number of years of the construction to total age of the construction. For example, a seller wants to sell the property he built 15 years back. The total depreciation would be 15:60 which is 1:4.
This would be the actual selling price of the construction. Add this to the price of the property to find the reasonable cost for selling the property.
The depreciation factor is proving null or void if the land or area in which the property is built is in big demand. Another factor which affects the cost of the property is the construction type, the state of electrical fittings, plumbing. If the buyer will have to renovate or make a major repair in the building then it will affect the cost of the building. It is better to price the building in the reasonable selling price.
If you are going to buy a property that was constructed quite sometime back and it needs major renovation and fixations, then it is better to negotiate the cost. The seller should keep in mind that the buyer will have to spend atleast 5 percent on the renovation of the property.
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