New wine in new wineskins: travails in the enhancement of the appraisal of real estate
However, a serious methodological and assumption caused consistency problem arises where the estimated construction cost is to be depreciated. Depreciation, according to standards, should accommodate physical deterioration, functional obsolescence and economic obsolescence, whereas most of conventional practice covers only physical deterioration. This of course has created a problem of consistency between valuers who depreciate for functional and economic obsolescence on one hand and those that consider only physical deterioration. Second is a problem of which is the appropriate method of measuring physical deterioration. This problem involves the valuer having to choose from amidst the wide variety of depreciation methods that exist. The variety ranges from the estimated percentage depreciation method - which is actually just a guesstimate, because it makes no attempt at logical justification or expressly revealed methodology - to methods drawn from financial accounting. The financial accounting models are founded on very different assumptions as to the pattern that depreciation follows over the useful life of the property being depreciated.