Effective Age-Condition

[RSW]

Terrel,

I agree that you have to extract the effective age from the market. How else would the effective age be arrived at? Do you think an adjustment should be made for age and for condition too?

 

[Pamela Crowley (Florida)]

I have often wondered why there are adjustment grids for both effective age and condition? I apologize up front if I am boring you a dumb question but could someone shed some light?

Obviously it's NOT a dumb question as there are already major disagreements being posted...

There is a theory on how to estimate effective ages for properties you've never seen except from the street and maybe some MLS photos. Personally, I don't deal with effective ages for comps and do not adjust for anything other than the actual age when I there is evidence that is necessary. My reason for not playing the effective age adjustment game is seeing way too many skippies use it to artificially inflate values. That my personal take on this issue and I'm sure others disagree, which is OK by me as long as they can prove it.

IMO, actual age takes into consideration the construction, styles, floor-plans, etc. of houses built around certain time periods. 1960s houses do not have similar floor-plans to 1980s, etc.

Condition is how well maintained the property is and if there are needed/necessary repair issues.

Two separate issues = two separate line items on the grid.

 

[nb23yrs]

Age and Condition adjustments

Hi-
I agree with the condition adjustment, but you stated "actual age" takes into consideration construction, design, etc.

If that is the case, why is there a segment in the grid for "construction quality" and "design" adjustments? Is your method not "double dipping?"

I have been an appraiser for 23 years, and have found this concept to be redundant.

 

[Pamela Crowley (Florida)]

Construction Quality: Marshall & Swift has very good descriptions of the different qualities of construction. You could have the same SF, but very different quality of construction.

Design and Appeal - examples:
2 story vs ranch, especially in communities with a large number of elderly.
Subdivision with all 2 story houses, some with better fenestration and landscaping vs others with original basic fenestration and minimal landscaping that is barely maintained. I think of "Design and Appeal" being what the Realtors call "curb appeal".

Still separate items from Actual Age of the construction and condition of the improvements.

Sometimes it's next to impossible to find any justifiable adjustments for some or any of these items, sometimes the adjustments will jump out at you. Talking to the long time experienced and ethical Realtors about these issues, or having listed and sold real estate for a time helps a lot.

If we always had cookie cutters, we wouldn't need any of these adjustments. I try to not have to adjust for any of these items and often that is the case, but when the newest sales of the nearest and most similar to the subject are different than the subject in these areas of comparison, adjustments often become necessary. These areas of comparison get involved when the appraisal is more complex.

 

[Mark to market]

There are many ways to appraise a property, here is another way of looking at it.

As most properties receive some updating and remodeling after a period of years, the actual age of an older property can lose relevance in the comparison process. For this reason, many appraisers choose to use effective age as an adjuster.

Per the Appraisal of Real Estate 12th edition, effective age reflects condition and functional utility.

In my part of the country it is generally easy to find comps of similar functionality leaving condition as the primary indicator of effective age.

As giving an effective age adjustment and a condition adjustment would be considered double dipping by most. I choose to combine my condition adjustment with effective age.

Once I establish the effective age I am able to get the effective age yearly adjustment from the cost approach. The yearly adjustment is a percentage of the cost new in the cost approach. This percentage is based on 1 divided by the estimated total life. Total life is based on quality and type of construction, and taken from case studies by Marshall & Swift p E7 (which might be a topic for another thread as I see many appraisers using M&S for the cost approach but not using M&S total life estimates). Another way to figure out the yearly effective age adjustment would be to simple divide the physical depreciation in the cost approach by the total years of effective age.

I am sure that some will find fault with this method however it works for me. I enjoy having some continuity between the cost approach and the adjustments. I also find that using this method provides some extra incentive to make the cost approach figures more exact. In addition it provides a relationship between reports. Underwriters seeing an effective age on one report can tell that it is in comparable, better or worse condition then the one I had previously sent. The underwriters cannot tell this by using generic terms like average.

 

[Richard Carlsen]

As giving an effective age adjustment and a condition adjustment would be considered double dipping by most. I choose to combine my condition adjustment with effective age.

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HEAR HIM! HEAR HIM!

:new_multi:​

I also make my condition adjustment based on the effective age. That amount is normally the rough estimate to say bring the comp up to the condition level of the subject if it is judged inferior. This estimate is my estimate of the cost-to-cure to eliminate the difference between the inferior condition comp and the subject.
It works.

 

[PropertyEconomics]

Would someone please show me how, mathmatically, you arrive at effective age from market analysis?

And yes I am a CG and I am asking the question.

 

[Elliott]

EA=(1-((SP-LV)/RCN))xTEL

Okay, now PE, I want to see a market developed paired sale adjustment.

 

[nb23yrs]

I have seen many appraisals which confuse condition and construction quality. How can something be in better condition than new? When I purchased my (newly constructed) house, the appraiser stated my house was in INFERIOR condition to a comp that was constructed 10 years ago. In reality, the comp was of superior quality. Funny stuff.

 

[PropertyEconomics]

EA=(1-((SP-LV)/RCN))xTEL

Okay, now PE, I want to see a market developed paired sale adjustment.

Dep = (1-((SP-LV)/RCN))/Actual Age

The question I have Elliott is .. where did your TEL come from? Shouldnt that be also market derived if you are deriving your effective age from the market???