Effective age

[Fred]

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.

To the extent I have paid attention, EA is reported as lower than AA almost all the time. I have even seen em with 80 to 150 year old houses with effective ages of 15-20. Extraoridinary maintenance must be the norm.

 

[Greenback]

To the extent I have paid attention, EA is reported as lower than AA almost all the time. I have even seen em with 80 to 150 year old houses with effective ages of 15-20. Extraoridinary maintenance must be the norm.

Extroardinary may not be the norm if routine maintenance and timely renovation/updating is taking place. Do you think all markets have the same economic life expectancies? Instead of across the board, set limit? Especially with historic homes?

My MAI supervisor tried to convince me this 9 year old home we were observing had an effective age of 12 years. He told me that my idea of a lower effective age of 5 years old gave it more depreciation than his 12 year old effective age. Argued that I was wrong thinking a 5 year effective age gave it less depreciation than a 12 year effective age; letting me know this was basic stuff and I should know it. I think my Supervisor has a different perspective that EA is almost always reported lower than AA. The house looked almost brand new.., I'm completely puzzled by his 12 year old effective age and reasoning about the lower effective age portraying more depreciation than a higher effective age.

I guess I wasn't educated correctly on all that basic stuff. But, for some reason, he agreed with me that the home hardly had any depreciation.

 

[Mztk1]

To the extent I have paid attention, EA is reported as lower than AA almost all the time. I have even seen em with 80 to 150 year old houses with effective ages of 15-20. Extraoridinary maintenance must be the norm.

Most houses aren't abused and have had updating so the effective age will be lower. But I have had my share of beat up houses with effective ages higher than the actual age.

 

[Mztk1]

Extroardinary may not be the norm if routine maintenance and timely renovation/updating is taking place. Do you think all markets have the same economic life expectancies? Instead of across the board, set limit? Especially with historic homes?

My MAI supervisor tried to convince me this 9 year old home we were observing had an effective age of 12 years. He told me that my idea of a lower effective age of 5 years old gave it more depreciation than his 12 year old effective age. Argued that I was wrong thinking a 5 year effective age gave it less depreciation than a 12 year effective age; letting me know this was basic stuff and I should know it. I think my Supervisor has a different perspective that EA is almost always reported lower than AA. The house looked almost brand new.., I'm completely puzzled by his 12 year old effective age and reasoning about the lower effective age portraying more depreciation than a higher effective age.

I guess I wasn't educated correctly on all that basic stuff. But, for some reason, he agreed with me that the home hardly had any depreciation.

As Steve points out and I touched on earlier, effective age is a vague concept. Text book definitions usually include functional, external and physical depreciation in the effective age but residential appraising almost always look at effective age as physical depreciation only. Since your mentor is an MAI I'd assume he is a commercial guy first residential second. His idea of effective age may be more in line with textbook ideas.

 

[Greenback]

As Steve points out and I touched on earlier, effective age is a vague concept. Text book definitions usually include functional, external and physical depreciation in the effective age but residential appraising almost always look at effective age as physical depreciation only. Since your mentor is an MAI I'd assume he is a commercial guy first residential second. His idea of effective age may be more in line with textbook ideas.

He isn't my mentor. He is considered a sponsor/supervisor, only. I have a mentor, she was an IFAS, I believe. She dropped her designation because it wasn't worth it.

I never look at effective age as just physical. First, because that's textbook. I consider external and functional, as well. Second, my mentor taught me never to just look at physical, too.

I believe my sponsorship was into expropriation, eminent domain, first.

I still don't see how a higher effective age shows less depreciation than a lower effective age.

 

[Mztk1]

It definately doesn't. Maybe he was confused or the two of you were on a different topic and didn't know it?

I can't bring myself to believe he simply didn't know what he was talking about because it is just too basic of a concept for an MAI to mess up on.

 

[Fred]

[1.] Extroardinary may not be the norm if routine maintenance and timely renovation/updating is taking place.

[2.] Do you think all markets have the same economic life expectancies? Instead of across the board, set limit? Especially with historic homes?

1. You are getting to the primary practical problem. For this idea to work, to be useful, to be meaningful, and to lend itself to further relevant analysis - there would have to be a standard for what makes EA and AA equal. There would have to be benchmarks for the level of expenditure on both routine maintenance, and on long-term or structural components - for what is required to maintain the equality of EA and AA.

Think of the enormity of the scope of analysis it would take to say that so much has been invested into a 60-year-old building that it is the engineering equivalent (EA = 10) to the one that had been knocked down 10 years ago and completely replaced. That's beyond me. However, with the aid of software, I can usually find the correlation between price and age, and if necessary price and condition, in seconds, rather than minutes. And avoid making up all these EA hypothesis.

EA is reported as lower at least 95% of the time. That extreme bias alone is enough to suggest a system so defective that it ought to be abandoned. BTW, what do you think the effective age of the Great Pyramids is?

2. It’s not just market life expectancy but building life expectancy, right? While all of them don’t have the same expectancy, most of them do. How do think historic homes got to be historic?

As Steve points out and I touched on earlier, effective age is a vague concept. Text book definitions usually include functional, external and physical depreciation

Not really. Harrison, who writes more clearly than the AI and who has been just as influential, defines EA as physical only.

Actually, “vague” is too kind. EA is ambiguous (more than one definiition) and each variant is worse than vague. Also,I think I posted that EA is a man-made contraption, invented to make a worse idea (age-life depreciation) appear to "work." And I can add that all of this age manipulation has the ulterior motive to make the worst appraisal idea of all time (the cost approach to market value) appear to “work.” So, "vague?" Not even close.

 

[Thomas N. Morgan]

In a lot of the reports I used to see, the appraiser would state an effective age significantly less than its actual age and justify it by listing some items of maintenance or repairs that did nothing more than to enable the home to attain its expected life.

 

[Greenback]

...I can't bring myself to believe he simply didn't know what he was talking about because it is just too basic of a concept for an MAI to mess up on.

I can easily describe it as adamant.

 

[Greenback]

...EA is ambiguous (more than one definiition)

I can agree with that.