In property appraisal, the term “economic life” refers to what?

The term “economic life” in property appraisal is defined as the period during which a property is expected to generate income or provide a return on investment. This concept is vital for appraisers as it helps in determining the value of a property based on its ability to produce income over time. It is influenced by various factors including market conditions, property location, and the condition of the asset.

Economic life emphasizes the practical use of the property in generating revenue rather than its total lifespan or physical age. For example, a building may physically exist for many years (total lifespan), but if it can only generate income effectively for a limited period due to market demand or obsolescence, that limited time frame is considered its economic life.

Understanding this distinction aids appraisers in making informed projections about the property's future performance and assists investors in assessing the viability of their investment. This concept is crucial in capitalizing on investments and strategizing for long-term sustainability in real estate.