Life Expectancy and Asset Value


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The Life expectancy of an asset can greatly affect value and is applicable to assets large and small – island resorts, towns, million acre stations, airports, mines, factories, aircraft, yachts, trains, Ferrari’s, scientific equipment, wine, cameras, watches.

Applicable to many valuation types including Purchase Price Apportionment, decline in value schedules (tax depreciation), Fair Value and so on.

Location – An asset located externally and uncovered within 1km of breaking waves will have a shorter lifecycle than an identical asset located within an operating theatre.

Age – (Yes age). Some older assets will have a longer lifecycle than some modern assets. Older assets are often more ‘maintainable’ than modern equivalents which can be intrinsically ‘disposable’.

Quality – A Rolls Royce will have a longer life expectancy and remain in better condition than a Lada. Cheap in the short term, may be expensive in the long term.

Usage of Asset – An asset that is operated 24/7 will have a shorter lifecycle than an identical asset that is used for 1 hour, per month. Some assets however require a regular ‘run-up’ to preserve life expectancy. Items within fleets of assets should be ‘rotated’ – golf carts are one example.

Quality of design, installation and commissioning – An assets life will be reduced if installed badly or incorporated within a poorly commissioned, tuned or designed, installation. Wooden joinery in a poorly ventilated building, unbalanced fan blades, lack of expansion joints/bends in pipework will reduce life expectancy and increase costs. This applies to assets in all categories.

Maintenance and Cleaning – An asset that has been poorly maintained will have a shorter life cycle than an asset that has been well maintained. Current, historic and future maintenance regimes including minor day-to-day maintenance and cleaning affect an assets life. Laboratory equipment may require six monthly preventative maintenance services.

Criticality, Utilisation, Functionality – An asset may need to be replaced or maintained (eg painted) more frequently if it is located in a business critical area (eg reception, operating theatre, TV studio etc) than the same asset located ‘back of house’.

Quality of consumables – if poor consumable items are used, life expectancy is reduced -lamps, ballasts, batteries, grease etc. It’s wise to think twice before putting cheap consumables into a quality asset. You usually get what you pay for.

Loading – An identical asset that is operated for the same period of time will have a shorter life expectancy if it has a higher loading eg carpet, chiller, lift, generator, emergency light, pump etc.

Manufacturers Recommendations – Warranty conditions may be relevant, however manufacturers do not know specific installation conditions. Each application is unique in some way and variables affect life expectancy of each element.

Surrounding Assets – A light fitting in a 10m atrium with a 20-year life expectancy should be replaced with the surrounding 15 year light fittings due to the cost of access.

Industry Lifecycle Guidelines – Various bodies have published base rate life expectancies. Useful for cross checking – a starting point, when no real data is available, often used for desktop assignments.
Bodies include: The American Society of Appraisers, The Australian Taxation Office (engage a valuer/engineer to ‘self assess’), The Chartered Institute of Building Services Engineers (CIBSE), The American Standard.

An experienced valuer (preferably with an engineering background) understands the array of variables that affect life expectancy.

For more information visit garryhorsnell.com.au

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