External obsolescence prove it exists

[DTB]

Lastly, Although I suggested otherwise earlier, I can find no significant references to an overimprovement in size being FO in any of my texts, so I am really beginning to become suspicious of my own beliefs at this point.

Thanks for NOT boring me.:new_sleeping:

 

[Ben Vukicevich SRA]

Bill G.,

I personally don't care what you call it. It's like the FRT argument in this section of the forum. No one will ever know the correct answer because the appraisal body of knowledge sucks, plain and simple. There are no definitive answers to the FRT dilemma or this one. I could better argue the inconceivable concept of the Trinity over at the History Channel than stupid appraisal dilemmas. LOL

What the site cost is in the example is irrevelant. It's the theory that is either correct or incorrect.

I'm just presenting it because Brad E. said it was "functional period" and that I was wrong.

My main point is that when an appraiser reviews a report and it is explained as FO or EO, there's no need to rip the appraiser a new one because the review appraiser thinks he knows it all. LOL

 

[Joyce Potts]

This makes sense to me.

How? Please prove it.

You have two vacant residential lots in the same development:

Vacant Lot A - Clsd 5/2005 $180,000 Backs RR Tracks
Vacant Lot B - Clsd 5/2005 $225,000 Interior Lot

Difference in lots due to location / RR influence - $45,000

Lots are bought by the same builder who constsructs the identical same 3,000 sf house on both lots and resells them:

Improved Lot A - Clsd 3/2006 - $550,000 Backed RR Tracks
Improved Lot B - Clsd 3/2006 - $650,000 Interior Lot

Difference in Improved Sales $650,000 - $550,000 = $100,000 (Less the difference in the original land cost of $45,000 =

$55,000 - Attributed to the External Obsol to the Improvements.

?????:icon_question: ?????

 

[Jim Bearden]

You have two vacant residential lots in the same development:

Vacant Lot A - Clsd 5/2005 $180,000 Backs RR Tracks
Vacant Lot B - Clsd 5/2005 $225,000 Interior Lot

Difference in lots due to location / RR influence - $45,000

Lots are bought by the same builder who constsructs the identical same 3,000 sf house on both lots and resells them:

Improved Lot A - Clsd 3/2006 - $550,000 Backed RR Tracks
Improved Lot B - Clsd 3/2006 - $650,000 Interior Lot

Difference in Improved Sales $650,000 - $550,000 = $100,000 (Less the difference in the original land cost of $45,000 =5,000 - Attributed to the External Obsol to the Improvements.

?????:icon_question: ?????

With all due respects that means his profit is $55000 less then he is the dumbest builder in the history of real estate.

 

[Joyce Potts]

With all due respects that means his profit is $55000 less then he is the dumbest builder in the history of real estate.

Like we've never seen a builder do something stupid? I never said it was smart, but it DOES support the argument. It does happen in real life, perhaps not to that extent, but I've seen it.

 

[Fred]

Steven, I'm beginning to understand your perspective.

It's based on the idea that more is more and less is less - real cutting edge.

Let me run the EO-FO thing past you. I think the confusion comes that market reaction is part of the "cause" of depreciation. Market reaction is external to the property. Therefore - per Ben and his vintage colleagues - overbuilding is external (or economic) obsolescence.

The more popular distinction is based on whether the thing that triggers the market reaction is internal to the property versus external to the property. The internal, or functional, triggers can be changed by the owner from within the property boundaries. Overbuilding can be demolished. Under-improvement can be re-modeled.
The external or economic triggers cannot be changed by the owner. If mortgage interest goes up or the leading employer closes shop, there is nothing the owner can do the property to cure the cause of falling prices that result.

 

[Mr Rex]

It's based on the idea that more is more and less is less - real cutting edge.

Let me run the EO-FO thing past you. I think the confusion comes that market reaction is part of the "cause" of depreciation. Market reaction is external to the property. Therefore - per Ben and his vintage colleagues - overbuilding is external (or economic) obsolescence.

The more popular distinction is based on whether the that triggers the market reaction is internal to the property and external to the property. The internal, or functional, things can be changed by the owner from within the property boundaries. Overbuilding can be demolished. Under-improvement can be re-modeled.
The external or economic things cannot be changed by the owner. If mortgage interest goes up or the leading employer closes shop, there is nothing the owner can do the property to cure the cause of falling prices that result.

86 posts and finally a good explanation. Well done, as much as I hate to admit it.

 

[Fred]

Bill G,
Here's another one from a professorial lecturer on Land Economics at American University, Arthur A. May.
It's old but he has a detailed section on an under-improvement that I will post. Probably in several sections because I can't upload a file that large

Doesn't everyone have this page-turner?

FWIW
In The Valuation of Residential Real Estate (1953), in the "Theory of Depreciation" chapter, on page 137, under the heading "Functional Obsolescence," he has the subheading "Superadequacy and Inadequacy. "

However,
On page 142, under economic obsolescence, he has overimprovement.

I think these days, it is more common to see superadequacy and overimprovement used synonymously.

 

[Ben Vukicevich SRA]

Steven,

You know that on Page 137 he's referring to individual super adequate or inadequate COMPONENTS of the dwelling and gives examples of such.

One Page 140, under the title of Economic Obsolescence, he lists Under-improvement or Over-improvement of land.

Let's move to the the 12th Edition of AI's The Appraisal of Real Estate (2001) below. Same old, same old. It adds nothing new to Mr. May's "vintage" premise.

See the words "External Obsolescence may affect only the subject property when its cause is location-e.g.-proximity to negative environmental factors" Negative environmental factors are those little houses that predominate in my neighborhood. They caused the loss in value to my dwelling. Hell, even the tax assessor applied EO to my home when it was initially assessed. The reval firm did the same thing 10 years later.

Next time a reval happens, it will be gone.

 

[Joyce Potts]

Conversely

Appraising 101.. Overimprovement is Functional not External.. all other posts are interesting, it looks like everyone has a lot of time on their hands.

Joe,

Does that mean an underimprovement is also functional?

The $64,000 question is are we defining the obsolesence by the standard set by the surrounding properties OR by the size of the subject?

I would argue both.