California Real Estate Practice Exam

If a buyer plans to purchase an older building, he would give most careful consideration to the:

1. actual life.

2. economic life.

3. economic life remaining.

4. effective life.

The correct answer is: actual life.

The most relevant consideration for a buyer planning to purchase an older building is the economic life remaining. Economic life refers to the period during which the property is expected to provide income or utility, considering factors like physical condition, market trends, and desirability. When a building is older, it's crucial to assess how much longer it can be used effectively before significant repairs or redevelopment becomes necessary. The actual life of a building is the total time it has existed, but this does not directly inform a buyer about the practical utility of the property going forward. The economic life provides a clearer indication of the building's potential for future cash flow and how long it could maintain or increase in value within the market context. Considering the effective life is also important as it refers to the actual age of the building in terms of its functional and economic viability, but when deciding on a purchase, understanding the remaining economic life provides insights into its future performance and investment potential. This makes the economic life remaining the best criteria for assessing an older building's value and longevity for a buyer's needs.