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an acceptable remaining economic life for a newer CB home is 100 years.

Discussion in 'General Appraisal Discussion' started by SunbeltAppraisals, Oct 29, 2009.

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  1. SunbeltAppraisals

    SunbeltAppraisals Sophomore Member

    0
    Aug 29, 2007
    Professional Status:
    Certified Residential Appraiser
    State:
    Florida
    My last SRA supervisor told me an acceptable remaining economic life for a newer CB home is 100 years. Her argument being there are plenty of frame homes that are 100+ years old. The default remaining economic life with WinTotal is 60 years.

    Remaining economic life is the number of years between the date of an appraisal and the date a property improvement will cease to have any economic value, even if it will still be structurally sound.

    Is she correct?

    Where does the default remaining economic life from WinTotal originate?

    Thanks for your help!
     
  2. George Hatch

    George Hatch Elite Member

    84
    Jan 15, 2002
    Professional Status:
    Certified General Appraiser
    State:
    California
    Well, one place they got it from is the Depreciation table in Marshall and Swift.
     
  3. Lee in L.A.

    Lee in L.A. Elite Member

    67
    Jan 24, 2002
    Professional Status:
    Certified Residential Appraiser
    State:
    California
    Some parts of a home last longer than others. I wonder how many 100 yo homes have the original fixtures, plumbing electric. Never mind HVAC, carpet, paint. That mostly original house would have "good bones" by now.

    Edit, good bones, at best.
     
  4. Restrain

    Restrain Elite Member

    11
    Jan 22, 2002
    Professional Status:
    Certified General Appraiser
    State:
    Florida
    In some areas, homes go over 100 years. In other areas, 50 year old homes are tear-downs. It all depends on the market, how the homes are maintained, etc. A frame home that is not well maintained may last 40 years...if lucky.
     
  5. Mountain Man

    Mountain Man Elite Member

    15
    Jan 15, 2002
    Professional Status:
    Certified General Appraiser
    State:
    Georgia
    Yes there are homes 100 years old, and even older in the UK. But, these homes have been meticulously maintained, extensively rehabed at some point recently, and were not allowed to just deteriorate. As GH said, most depreciation models are based on M&S. Consider that a house, of ANY construction, would deteriorate to dust if not properly maintained.
     
  6. Terrel L. Shields

    Terrel L. Shields Elite Member
    Gold Supporting Member

    232
    May 2, 2002
    Professional Status:
    Certified General Appraiser
    State:
    Arkansas
    You can extract that from the marketplace. This is more accurate than PFA. In lieu of that, you can go to the M & S tables for the info or to a residual table such as NBC (National Building Cost) book. Residual tables and M & S are market derived numbers that are not straight line depreciation.
    NBC goes from 55 - 70 years but has a table for using 'age' vs % good. Using the quality class, you go to the table and there are 3 rows. Chronological age Rem Life and % Good... Use the actual age for newer construction, use the Rem Life estimate by estimating the "effective age" under the appropriate total life column. Means also has a residual table as did the old Boeckh system.

    But you can easily extract the total life from newer construction. Say a 5 yr old house sold for $230,000 where the (current) land value is $50,000 and the dwelling (current) RCN is $200,000. 230,000 - 50,000 = 180,000. 200,000 less 180,000 means it has lost 20,000 worth of value in 5 years, or $4,000 per year.
    4,000 รท 200,000 = 0.02 (2%) per year.... 1/x (reciprocal) = 50 years...total life. thus remaining life is 45 years.

    200,000 x 45/50 (90%) = 180,000 + 50,000 lot value = $230,000

    Do all your comps that way. That "Purity of Application" thingy...

    Older remodeled homes will need to be vetted for effective age. A judgment call. Nothing wrong from evoking your "judgment"...and yes, they do have houses that are 600 years old. But 600 years ago they didn't have electrical, plumbing or other modifications that are an on-going process with older houses.
     
  7. Lee in L.A.

    Lee in L.A. Elite Member

    67
    Jan 24, 2002
    Professional Status:
    Certified Residential Appraiser
    State:
    California
    But, don't home prices always go up? :leeann2:

    J/K Terrel, You are a fountain of information. I mean that in a good way. :beer:
     
  8. DMZwerg

    DMZwerg Senior Member

    0
    Mar 25, 2009
    Professional Status:
    Certified Residential Appraiser
    State:
    Wisconsin
    There is also construction quality.

    Poor quality homes may fail or need serious rehab after only 20 years (+/-)
    Fair, a bit longer (I think 30-40)
    ...

    So as the lower quality homes deteriorate faster (even given maintenance) and are replaced the quality homes that were well maintained are actually just hitting their stride.

    So you have quality of construction affecting overall lifespan, maintenance (with random chance of being ill-maintained and dropping in condition), and so forth. So yeah, 100+ year old homes do exist, and so too do 300+ year old homes, but that does not change that the remaining economic life for a new built home is probably 60 years.

    Think of it as "half-life", or the point half will be obsolete or gone.
    Same hold true for electronics including light bulbs, fridge, freezer, and other things such as water heaters, furnaces, roofs, etc (aka, they each have a life expectancy that some will outlive and some will fall short of).
     
  9. Green Hornet

    Green Hornet Senior Member

    0
    Dec 29, 2006
    Professional Status:
    Certified Residential Appraiser
    State:
    Washington
    It seems that the real variable is the maintenance. A 100 year old home with no up keep, probably ready for the landfill.

    I did my training in a metro area. Many of the home were brick facade, stick built and over 100 years old. Many were better quality than 50 year old home. As with any structure they need some sort of up keep. A new roof, gutters, exterior paint, etc.

    I remember one brick home that was over 110 years old. Probably had some updating at some point. Still had knob and tube wiring, lathe and plaster, single pain windows and an octopus, oil furnace, converted from coal in the basement. They ran the furnace for 15 minutes on the hour and the whole house was nice and warm. Probably good for another 110 years...if maintained.

    Leave the freeways empty for 100 years and you would never know they were there!

    So is the economic life expectancy what it would be without any maintenace, or what it would be left empty on its own?
     
  10. jay trotta

    jay trotta Elite Member

    11
    Feb 8, 2004
    Professional Status:
    Certified Residential Appraiser
    State:
    Connecticut
    Terrell, good info and I agree with Lee, but I think GreenHornet has made an excellent point and where you added in the Land Value (50,000) current I have a question.

    If the land value is current value wouldn't that skew the numbers ? What if land values increase ? Generally, if land values are on the rise (limiting commodity-value increase) or am I overthinking this ?

    Additionally, in the first years of ownership, there is generally limited maintenence required - the 5-10 year period is when the maintenence increase's (normal wear & tear) cost to cure becomes a factor. I believe this is when the depreciation factor becomes an estimated soft cost factor and tempts the appraiser into thinking (via -M & S) it can be done comfortably.

    Forms of depreciation are wide ranging, and when I did the insurance thing, we used many factors to determine "depreciation", which was always questioned. It always came down to a give N take thing - for settlement purposes. In this business, the appraiser is/has been the scapegoat for insurance purposes and take on the position in the target area. Over the years this has lead the Banking Industry to "push" everything onto the appraiser's plate, because we RELY on that Industry. In order Not to loose a Client, we have overstepped our bounds in What we should supply, after all, we are Licensed/Certified to render an "opinion" of value, based on "market influences". We are Not, licensed home inspectors / electricians / plumbers / roofers / window & door inspectors / heating-AC inspectors OR Energy Audit compliance inspectors.....all of which Require a "License" in my State.
    The public will always have an option to buy New Construction or that Better than New product and it will always come down to; an "Emmotional Choice" - which is most difficult to reconcile. Why did they choose one or the other ? Ahh, that theory of substitution......

    As soon as a new product comes out, the advertising that hits the appraiser is unbelievable; become a Home Inspector or become an Environmental Auditor.......yada, yada- if all it takes is a few days worth of schooling ($1,500 to $2,500 for that sheep skin)to become an expert in ANY field, why are so many "Out of Work" today ??

    cheers
     
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