View Full Version : External Obsolescence?


jskinny
03-18-2008, 12:11 PM
The subject backs to a major highway and has a 40' sound barrier wall between the back yard and the highway. I want to make a an adjustment reflecting this less than desirable feature. I believe this is considered exterior obsolescence and want to adjust the subjects site on the sales grid. Do I list the subject site as average and the comps that dont back to highway as supeior or do I list the subject site as inferior and the comps as average. I know this is a pretty basic question but there you have it. Thanks to all that reply.

leelansford
03-18-2008, 12:20 PM
The subject backs to a major highway and has a 40' sound barrier wall between the back yard and the highway. I want to make a an adjustment reflecting this less than desirable feature. I believe this is considered exterior obsolescence and want to adjust the subjects site on the sales grid. Do I list the subject site as average and the comps that dont back to highway as supeior or do I list the subject site as inferior and the comps as average. I know this is a pretty basic question but there you have it. Thanks to all that reply.

Let me ask this: specific to a residential property that is rear-adjacent to a major highway, is such status "average" within the neighborhood?

I suspect that such status is not "average".

Therein is your answer.

444nutman
03-18-2008, 12:54 PM
The way I look at is no matter what section of the grid you put it on as long as you explain in your comments your good. I personally would put HIGHWAY on the view section of the grid and explain. Two things to remeber:1) Make sure you have at least another comp with similar external obsolescence. 2) This one is missed all the time; make sure you account for the obsol. in the cost approach. (if prepared). Make sure you can prove your adjustment.

Riick
03-18-2008, 12:55 PM
SUBJECT: Inf: Hi-Traff
Sale #x: Typical/Avg

RSW
03-18-2008, 12:59 PM
I agree with nutman. Make sure you have at least one comp. with the same obsolescence and account for it in the cost approach too.

stefan olafson
03-18-2008, 01:10 PM
One other thing, make sure there is external obsolescence in the property before you adjust for it.

Find sales in similar locations and sales in more typical residential neighborhoods, you will find your obsol and your adjustment that way.

KD247
03-18-2008, 01:57 PM
In the sales grid, along the Subject Column on the Location Line: "Adj Highway" (or similar, like "Traffic Noise")

For the comparable sales, Superior, Similar, Inferior, then comment with detailed explanations regarding the differences. Make sure you bracket the subject's location, even if you need to use older or distant sales.

In the comments, "Because of traffic noise and the unsightly 40' sound wall in the subject's back yard, the highway's proximity is a negative external influence, considered in the Sales Comparison Analysis as a Location attribute. In the Cost Approach, the influence is reflected entirely in the Site Value, with no additional External Obsolescence attributed to the Improvements."

lizhorvath
03-18-2008, 03:28 PM
If backing up to the highway ISN'T average, then I wouldn't mark my subject's site as Average. If all the comps are on average lots, then THEY are the average ones, and your subject is inferior.
And I agree - you'll wanna find a comp with the same obsolescence.

Howard Klahr
03-18-2008, 04:55 PM
Is this house located within a subdivision that has other homes with a similar influence? If so, I think you will find that the differential is not as great as you might precieve, at least this is often the result in the projects I have reviewed.

This one is missed all the time; make sure you account for the obsol. in the cost approach.

account for it in the cost approach too.

Remember, part of the external obsolescense is attibutable to the land (should already be accounted for in your site value) and a portion toward the improvements. Don't double count this factor by not addressing the issue correctly.

KD247
03-18-2008, 06:38 PM
Is this house located within a subdivision that has other homes with a similar influence? If so, I think you will find that the differential is not as great as you might precieve...Great point. Many appraisers set out to find data supporting for their pre-conceived adjustments. Start with an open mind, and carefully analyze closely bracketing sales as well as prior sales of the subject versus contemporaneous sales of non-adjacent properties. Keep in mind that external influences have a much greater effect in weak markets than in strong markets.

Remember, part of the external obsolescense is attibutable to the land (should already be accounted for in your site value) and a portion toward the improvements. ...The Cost Approach is based on the site value as if vacant and current new materials cost, so 100% of the External Obsolescence will be reflected in the site value. (Search previous threads for debates on the logic.)

timd354
03-18-2008, 10:07 PM
Keep in mind that external influences have a much greater effect in weak markets than in strong markets.

That is so true, a couple years ago when appreciation was over 25% per year in most of my coverage area and multiple contracts and bidding wars were the norm, external influences such as backing to a freeway had almost no effect on value as buyers were desperate to buy anything at almost any price and ignored virtually any "problems". Now that the market has changed and it is clearly a buyer's market in most of my coverage area, these types of properties are virtually unsellable without a huge discount...I had one recently where the dimunition of value of a property backing up to a freeway appeared to be 15-20%.

Riick
03-19-2008, 11:24 AM
That is so true, <<snipped>> these types of properties are virtually unsellable without a huge discount...I had one recently where the dimunition of value of a property backing up to a freeway appeared to be 15-20%.
I think minus 15-20% would be a typical market discount - in most places at most times. In boom times, as you said, anything goes.
Chicken Eggs: $1@ - California Gold Mining towns c.1849

masmia
03-19-2008, 01:00 PM
I want to make a an adjustment reflecting this less than desirable feature. I believe this is considered exterior obsolescence and want to adjust the subjects site on the sales grid.

I'm surprised noone has brought this up yet but external obsolesence is not determined by what you want or beleive. If there is market evidence to suggest a negative impact on the subject's value due to the highway then you have EO and would adjust accordingly. If there is no market evidence than what are you goint to adjust for? Are you goint to pull a magic number out of thin air for the adjustment?

masmia
03-19-2008, 01:08 PM
Just figured I'd add that to determine if there is or is not external obsolesence in the absence of recent sales you can look at old sales of homes with similar highway and see how they sold in relation to the other old sales of the same time period without the highway. Either that or go to a market area similar to the subject's and see if you can find comps with highway.

KD247
03-19-2008, 01:08 PM
I'm surprised noone has brought this up yet but external obsolesence is not determined by what you want or beleive. ..Masmia, I think I understand what you're saying, but many appraisers are too quick to ignore this type of significant negative influence simply because it's not shown by a cursory search of the data. The highway proximity and high wall are obviously going to have some effect on value, and has to be addressed. You are right though, in that the effect shouldn't be presupposed and that the adjustment for market reaction has to come from somewhere.

Riick
03-19-2008, 01:29 PM
If there is no market evidence than what are you going to adjust for? Are you going to pull a magic number out of thin air for the adjustment?

You are right though, in that the effect shouldn't be presupposed and that the adjustment for market reaction has to come from somewhere.

(1) Somewhere along the line most people take a class that tells them about concepts such as external depreciation.
One typical example is location on a high-traffic street.
Has the OP made a giant illogical leap to think that location that Backs
on high-traffic street has similar external depreciation to one that
Fronts high-traffic street??
So much for presuppositions.

(2) What DO you do if there ARE no recent nearby sales with same characteristics, and nothing within a year? and nothing within 2 years!?
---(a) PIOOYA adjustment?
---(b) Go back 3 years and then do a time adjustment?
---(c) Go 6 or 60 miles away to a supposedly similar neighborhood.
How accurate are any of those?

I have my own answer, which seems to be viable, but I'm curious to see what discussion will follow -if any.

KD247
03-19-2008, 01:52 PM
...
(2) What DO you do if there ARE no recent nearby sales with same characteristics, and nothing within a year? and nothing within 2 years!?... That's a big question, because it generally addresses analysis of any appraisal problem. My answer? Use the best data available, whatever that happens to be, hopefully a recent sale of a model match but, worst-case, perhaps nothing more than a guesstimate based on nothing more than general experience in the area, combined with interviews with brokers and buyers. Usually, the issue is resolved somewhere in between, typically by using distant and/or older sales.