Effective age

[Greenback]

...Can we put a price tag on the hardships and trouble caused by inflation? Or the loss of life in the ravages of war?

I think it can be compared (paired). As long as there is behavior that proves it? I think so.

Effective age, by definition, is to encompass all forms of depreciation.

I will keep this in mind.

Do you have the Appraisal Institute's text book? I believe the 13th edition just came out. This stuff is in there.

I try to stay away from the AI and a lot of the material. I have an older edition given to me by my mentor. I will always keep that book. It holds a different type of value to me, more value than the words and thoughts within the book.

...Uniqueness is not a form of depreciation but can be a cause in some situations. ~ Mr. Klos

Interesting thought...

 

[Greenback]

...Can you say inflation?

Absolutely. I think Inflation has a place for pro growth, but I also think appreciation contributes. If comparing Inflation with appreciation, how much inflation would you consider to be dangerous? I think Louisiana had a motivated seller and is often a lagging indicator in the nation's economy today. Do you think Louisiana's uniqueness ads to the state's life expectancy and reduces the state's effective age when compared to three other states of your choice? Can Louisiana be compared; with enough data, may an Appraiser extract an adjustment for the effective age?

 

[Greenback]

Page 1, left side, 3/4 of the way down, General Description. Effective age is right below year built.

Improvement section.

 

[Mztk1]

Can we put a price tag on the hardships and trouble caused by inflation? Or the loss of life in the ravages of war?

I think it can be compared (paired). As long as there is behavior that proves it? I think so. ..[/COLOR]

I don't think it can be done with any level of accuracy. There are too many variables. For instance, right now we are in war and the inflation factor is rising and people are dying. How much can be attribute to the war? Is there another war just like it we can compare it to? You have the European dollar that left our shores because they no longer like coming to America due to this war, at the same time the Europeans dollar has become the strongest on the globe and it would do well here - they accept the Euro at some stores in NYC same as cash just like the islands accept the American Dollar. Can we attribute that to a war? If you look at real estate trends you see that slumps in real estate are directly connected to off high shore expenses (namely wars). It is the old Guns or Butter choice. At the start of the Iraq war we thought it would be easy and inexpensive (we were told the Iraqis would pay for it themselves with the oil they have) and our property values here soared. But once the expense became real, real estate bottomed out like it did during WWI, WWII, the passage of the Marshall Plan, the very start of the Korean Conflict (War), the start of Vietnam, the start of Iraq War I, etc. Big investors make more money on war then they do in real estate, or in the stock market for that matter. But including the loss of value in real estate to an overall cost of the war would be controversial indeed. So would including the rising oil prices, no matter how obvious it seems to some that it is directly due to the war. So how would you measure? Where would we agree? And even if we all agreed 100% would that make us right?

I believe the Germans say:

Psychologie ist männliche Scheiße.

 

[Greenback]

I don't think it can be done with any level of accuracy.

Roughly. It would take a good while, but I think there is a rough proximation some where.


Correct me if I am wrong: I have not read any post that says, yes - effective age can be market extracted by paired sale analysis and roughly adjusted for if market evidence portrays such.

If effective age is not a function of the cost approach, then is it an element of comparison? Does it stand alone for an Appraiser to use it when and where he/she pleases; somewhat moveable?

 

[Mztk1]

Effective age can be market extracted, but it isn't necessary unless you are doing a cost approach (and I suppose others would say it isn't necessary to do a cost approach, or do it when doing the cost approach either).

If you have a house that costs $60,000 to build and its sale price of $100,000 and it is 5 years old, plus you have a house that cost the same to build, it is new, and its sale price is $105,000, as long as the 5 year old house has had no improvements at all and is in average condition for its age, you have a market extracted depreciation rate of $1,000 per year to the structure. That means in 60 years, under the supposition that the depreciation will continue at that rate, the house would fully depreciation without any improvements in 60 years. In this scenario 60 years becomes your total economic life. Now lets say you have a sale that is 8 years old and it had updates and it is selling for $101,000, all other things equal. In this case, the 8 year old house has a market extracted effective age of 4.

As for a rough proximation, we have rough proximations on the dead Iraqi citizens from anywhere between 100,000 and 1,000,000. That is really, really rough. And depending on what $ amount you attached to a life, which is also going to be rough, and depending how many lives you say were lost between those two numbers, you are going to exponentially expand how rough your estimate is. Because there are about a dozen or more other wide range variables that exponentially cause even greater rough estimates, but the time you get done, no matter how precise and accurate your math calculations are, you are still going to have a +/- figure in the hundreds of millions if not billions of dollars and there is a chance the real figure lies outside that range.

 

[Greenback]

Effective age can be market extracted, but it isn't necessary unless you are doing a cost approach (and I suppose others would say it isn't necessary to do a cost approach, or do it when doing the cost approach either).

If you have a house that costs $60,000 to build and its sale price of $100,000 and it is 5 years old, plus you have a house that cost the same to build, it is new, and its sale price is $105,000, as long as the 5 year old house has had no improvements at all and is in average condition for its age, you have a market extracted depreciation rate of $1,000 per year to the structure. That means in 60 years, under the supposition that the depreciation will continue at that rate, the house would fully depreciation without any improvements in 60 years. In this scenario 60 years becomes your total economic life. Now lets say you have a sale that is 8 years old and it had updates and it is selling for $101,000, all other things equal. In this case, the 8 year old house has a market extracted effective age of 4.

Thank you, Mr Klos.

 

[ZZGAMAZZ]

Doesn't industry literature or FNMAE standards somewhere cite the relationship between "Effective Age" and the "Condition" line item in the 1004 SCA?

 

[Mztk1]

Doesn't industry literature or FNMAE standards somewhere cite the relationship between "Effective Age" and the "Condition" line item in the 1004 SCA?

Do you mean this?

The relationship between the actual and effective ages of the property is a good indication of its condition. A property that has been well maintained generally will have an effective age somewhat lower than its actual age. On the other hand, a property that has an effective age higher than its actual age probably has not been well maintained or may have a particular physical problem. In such cases, the lender should pay particular attention to the condition of the subject property in its review of any appraisal report that requires the appraiser to address the actual and effective ages of a property.

I kind of remember reading somewhere that some guideline does not want to see an effective age adjustment on the grid, but since I never do that I can't recall where I read it. Was it FHA?

 

[Artemis Fowl]

Effective age is unconscious use of relative ranking, methinks. At least as I've seen it applied within the SC grid. It's not bad if used that way but recognize it as a ranking method of similar properties. I'd not want to defend an adjustment for it. If you are going to adjust for condition...then adjust for condition. I've seen it even more commonly applied to inflate value but that's a different thread.