Effective Age-Condition

[PropertyEconomics]

I am sure they both work. The M&S approach has % adjustments which are between 1.67% & 2% of the cost approach new depending on total life of 50 or 60 years.

If I recall your approach has figures of a bit over 1% but total life almost double M&S which would equate to about the same.

Between 1 and 2% are typical Mark in the early life of the property and less as the property ages. The market renovates prior to 60 years so I would think market derived is more reasonably supported.

 

[RSW]

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.

I don't think the effective age is mathmatically calculated from the market. I look at other homes in the subject's market area, new, moderately new, older, and old. I take into consideration the age of these homes and look at their condition. A new home that is one year old should have an effective age of 1 year typically. This is usually the case for homes even up to 5-10 years of age. People start to update, paint, replace floor coverings, HVAC systems after ten years. This is where the effective age comes into place. I also look at the comparable sales MLS briefs in the comments section about what type of updates have been completed. Real Estate agents love to give details about updates because they want to sell the property. This can give a good indication of the effective age of the comps too. I use all of these ways to arrive at the effective age of the subject and the comps..

 

[Mark to market]

It seems to me assignment of effective age is, solely, the appraisers judgement of the condition of the improvements. It is not an exact science. I feel pretty good about my ability to judge condition but what makes me feel vulnerable when making the adjustments is it the fact that, in many cases, I haven't seen the interior of the comparable sale. To a large extent I am judging the effective age of the comparable based on the exterior inspection.

That would be difficult and is a good reason for appraisers using different methods.

I guess we are lucky out here in NM as our MLS often has a description of upgrades and a dozen interior and back yard photos.

 

[Terrel L. Shields]

don't think the effective age is mathmatically calculated from the market.

why not? If you are using REPLACEMENT cost new, then you are not REPRODUCING what is there, a mix of improvements, but the overall size and overall age of the comparable as determined by the market...
1200 SF built in 1988
added 600 SF in 1998
SOLD for $200,000 in 2008. Land worth $60,000
200,000 - 60,000 = 140,000 ÷ 1800 = 77.78 ÷ $102 RCN = 76%REL
.67 x 20 years and .33 x 10 years = 16.7 year average actual age = 24% ÷ 16.7 = 1.437% per year depreciation = total life of 69.58, say 70 years TEL....

 

[38Scarcello]

I did not think this thread would evolve to this, but there are some very interesting ideas out there.
The first way I was taught to work with effective age was this:
Your subject is 20 years old. Automatically, 'begin' with an effective age of half of that, so in this case it would be 10 years - mainly due to wear and tear, deterioration, etc. Thus giving you something to the effect of "20A/10E". I would then 'adjust' the effective age +/- depending on updates, condition, etc - obviously add a few years on if the subject\comparable is in poor or below average condition. Use this same technigue on the comps....and there you have it. Just avoid any 'condition' adjustments, and double dipping. I have never been questioned on this technique.
There it is...let the pouncing begin. :new_multi:

 

[Terrel L. Shields]

It seems to me assignment of effective age is, solely, the appraisers judgement of the condition of the improvements.

which means it cannot be supported except by evoking your "skill and judgment" in the marketplace, which is the purpose of formalizing appraisal methods, to have a basis for supporting your "skill and judgment".....

Lots of Realtors, investors, and appraisers rely upon their personal skill and adjustment and 2 appraisers can call a house's effective age of "25" or "15" and mean the same thing... 15 years on a 60 year TEL is 25%, 25 on a 100 year TEL is the same.

 

[PropertyEconomics]

why not? If you are using REPLACEMENT cost new, then you are not REPRODUCING what is there, a mix of improvements, but the overall size and overall age of the comparable as determined by the market...
1200 SF built in 1988
added 600 SF in 1998
SOLD for $200,000 in 2008. Land worth $60,000
200,000 - 60,000 = 140,000 ÷ 1800 = 77.78 ÷ $102 RCN = 76%REL
.67 x 20 years and .33 x 10 years = 16.7 year average actual age = 24% ÷ 16.7 = 1.437% per year depreciation = total life of 69.58, say 70 years TEL....

This calculates Total Economic Life .. but I see no where that the effective age is calculated here.

 

[Mark to market]

I did not think this thread would evolve to this, but there are some very interesting ideas out there.
The first way I was taught to work with effective age was this:
Your subject is 20 years old. Automatically, 'begin' with an effective age of half of that, so in this case it would be 10 years - mainly due to wear and tear, deterioration, etc. Thus giving you something to the effect of "20A/10E". I would then 'adjust' the effective age +/- depending on updates, condition, etc - obviously add a few years on if the subject\comparable is in poor or below average condition. Use this same technigue on the comps....and there you have it. Just avoid any 'condition' adjustments, and double dipping. I have never been questioned on this technique.
There it is...let the pouncing begin. :new_multi:

The most important part of the adjustment process is that the ages given are relative to each other. Your method is doing this and probably works just fine. If I may suggest try fine tuning it a bit. Divide your physical depreciation (in the cost approach) by the number of years of effective age to get a yearly effective age adjustment. If this number is $4000 and you estimate that one house has $8000 more in adjustments then you know that they have and effective age difference of 2.

 

[Lawrence R.]

Here is what I have come up with.

There may be an actual, reliable way to come up with an effective age that you could defend.

That being said, only 7 appraisers are actually doing that.(or are even capable, LOL)

The rest of you are full of crap.:new_2gunsfiring_v1:

Did ya miss me?

 

[Mark to market]

PE,
When I use Marshall & Swift all of my calculations are easily verifiable. I would think that underwriters are not very familiar with your method. Do they ever ask for calculations?