Which method is commonly used for calculating depreciation in a cost approach?

The age-life method is a commonly used technique in calculating depreciation within the cost approach to valuation. This method takes into account the total economic life of a property and compares it to its effective age to determine depreciation. The effective age reflects how much value the property has lost due to wear and tear, outdated features, or obsolescence, which is crucial in adjusting the value to a potential buyer.

In applying the age-life method, appraisers calculate depreciation by dividing the effective age of the property by its total economic life, resulting in a depreciation percentage. Then, this percentage is applied to the property's current replacement cost, which provides a more accurate estimation of value by accounting for the property's physical and functional deterioration.

While the straight-line method is straightforward, often used in financial accounting, it does not necessarily consider the varying rates at which different components of a property may depreciate over time. The replacement cost method focuses on estimating the total cost to replace the property, while the income approach method is utilized to value properties based on their income-generating potential. Both of these methods do not specifically address calculation of physical depreciation in the same direct manner as the age-life method.