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Estimating Asset Values and Asset Depreciation

This article was written by in Real Estate and Home. 3 comments.


In response to my latest balance sheet, Wacko asked a question:

Any pointers on how to calculate an automobile’s depreciation? Obviously I can look at Kelley Blue Book, but I do not know the monthly depreciation.

Also, I was wondering if anyone knew of an accurate way to determine the value of one’s home. I want to be able to balance the current value of my home with the loan on it.

What is the true value of an asset?

It’s probably not the amount you paid, first of all. The best way to value an asset is to determine how much money an individual will provide to transfer ownership. Take a car, for example; as soon as you drive a new car off the lot, it no longer has the cachet of being a “new car.” Thus, it would be difficult to find a buyer to pay as much as your paid.

For my car, I use Edmunds.com to determine the fair market private party selling price. Kelley Blue Book is a good resource, as well. By updating the value each month, you can start to get a picture of the monthly depreciation rate. This is just an estimation as the value may fluctuate month to month based on other market conditions. I smooth out these fluctuations by taking the difference between the Edmunds value at the end of the year and the value at the end of the prior year and dividing by 12 to revise my monthly depreciation rate. Surprisingly, my car hasn’t lost much of its resale value over the past year.

This is not the same as determining “official” depreciation to be used in reporting to the IRS. Depreciation for tax purposes has less to do with sell value than with determining a standardized way for businesses to deduct depreciation. If that’s what you’re looking for, you can read the IRS overview on depreciation.

There are some tools that help you determine the value of your house. Many people simply use the value determined during their latest tax assessment. You can also estimate based on the selling prices of similar homes in your area, which are publicly recorded. You can also try Zillow, but there is a lot of dispute regarding the accuracy of their numbers.

You never really know what someone will pay for your asset until it is sold, so when you value your car or house, you’re looking at estimations. As long as the idea is to track your own progress, not compare your asset values to others’, just use the same method of estimation each time. You’ll get a good picture of the trend over time, even if the value isn’t exact.

Updated August 9, 2011 and originally published November 30, 2006. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes, also known as Flexo, is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about him and follow Luke Landes on Twitter. View all articles by .

{ 3 comments… read them below or add one }

avatar Wacko

Thanks, Flexo.

Good idea about the car.

I struggle with the home piece for the very reason you mention. Sites like Zillow may not accurately identify the current value of one’s home, but you cannot rely on the periodic formal home estimates either. And unfortunately, you cannot necessarily use the same calculation method of comparing a house estimate from year 1 with year 3 because market prices fluctuate. Perhaps this should be done yearly.

On another note, how long does it take you to create your income and net worth statements each month? I’m starting to do this, even aided with tools, and it seems it takes a while.

Thanks again.

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avatar Luke Landes ♦127,485 (Platinum)

It takes me about ten minutes to review the reports in Quicken to correct any errors, two minutes to export/import them into Excel, another two minutes to fix the formatting, and another minute or so to convert it to a graphic. It’s the time spent almost every day entering activity into the software that is the most work.

Writing the posts that coincide with my updates, which include my justifications for overspending and other excuses, take longer.

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avatar sgt.red.blue.red

Wacko,

I do a balance sheet and income statement as a loan compliance item for a bank (conduit loan) every three months. Having done this for several years, I’ve shaved off a lot of time doing it. Takes an hour or two. I go to bank and brokerage websites at the end of each month and print a pdf of what the statements look like, and home mortgage and investment real estate loan(s). Income statements for properties I do each month. Income, I lowball. Understate real estate values. I state original purchase price basis for r/e to bank, and date purchased, that way I fully disclose. I don’t include personal property other than car. Loan balances and interest paid and earned is a cinch. Depreciate income property using IRS guidelines for property type. You will find short cuts to make easy. Then, next time you want to go to banker for loan, you just pull out your most recent statements. Ask what they would lend based on your statement for income property, raw land, &c.

Footnote statement for deferred taxes.

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