Remaining Economic Life, What Say You?

[glenn walker]

Economic life is long as you can sleep in it !!! well over a 100 Years and if updated 200 years : ) LOL

 

[George Hatch]

That's not *always* true.

I just appraised an SFR property in a residential subdivision with an 11000 sf lot and a 1979 house of 2000 sf in average or better condition. The site is being developed with a new 4600 sf house because due to external conditions - the old house became enough of an underimprovement for the site as if vacant that there was a profit to be made in redeveloping it.

I also just got done appraising a 90+yr old freestanding retail building of 2000 sf on a 3,600 sf lot with secondary retail exposure - they're remodeling that sucker because the existing structure is larger than what can go on that site if vacant.

I'm working on another project that started out with a 1970s house on site (also ~2000 sf in size and also in average condition) that got scraped to make way for (3) new SFRs of 5500-6500 sf. The old house was the HBU for the site when it was built but the prevailing trends in the neighborhood eventually reduced it's REL to zero despite the condition.

Like I've been saying, physical condition is a lot of it but it's not always the sole determining factor.

 

[George Hatch]

BTW, in the case of both of the above SFRs, both had prior sales in their respective sales histories where - based on the financing - it's quite likely that the appraisers involved both failed to comment on the then-limited REL. Why would a lender do a 30-yr loan on a property that had an REL of less than 5 years?

 

[glenn walker]

Nothing to do with economic life *** Highest and best use was or is to tear down the home and build a much larger home on the site ** In Los Angeles people are tearing down perfectly good homes to build MC-Mansions because there are no more build-able lots or sites and money is flooding in from China and Taiwan as a flight to safety. *** The buyers often do not want homes built in the sixties or seventies and demand 4,000 to 8,000 Square foot new construction. This is true all across the Pacific Rim *** Economic life is not the issue on this property it's what is the highest and best use for the property ** Today it's not a 2,000 Sq.Ft. home built in the seventies or eighties. Most of these buyers were born in the seventies and now are mega rich.

 

[Tim The Enchanter]

If the appraisal is for a loan and REL is less than 30-35 years, you will hear about it.

 

[Tom D]

a 14 year old dwelling original everything, you say is like a 7 year old house original everything.
example #2 is a mistake to see who would agree?

 

[Digger88]

BTW, in the case of both of the above SFRs, both had prior sales in their respective sales histories where - based on the financing - it's quite likely that the appraisers involved both failed to comment on the then-limited REL. Why would a lender do a 30-yr loan on a property that had an REL of less than 5 years?

good lord my op title was an abomination. meant to say whats your opinion of effective age (versus physical in the examples).

 

[George Hatch]

Nothing to do with economic life *** Highest and best use was or is to tear down the home and build a much larger home on the site ** In Los Angeles people are tearing down perfectly good homes to build MC-Mansions because there are no more build-able lots or sites and money is flooding in from China and Taiwan as a flight to safety. *** The buyers often do not want homes built in the sixties or seventies and demand 4,000 to 8,000 Square foot new construction. This is true all across the Pacific Rim *** Economic life is not the issue on this property it's what is the highest and best use for the property ** Today it's not a 2,000 Sq.Ft. home built in the seventies or eighties. Most of these buyers were born in the seventies and now are mega rich.

Again, you need to stop thinking of REL as being entirely about condition. The REL of an existing use is an element of HBU and vice-versa. Physical attributes and condition that are acceptable in one location may be completely obsolete in another.


Lemme ask you: under which criterion in the HBU analysis do you think the REL for an existing use would be analyzed, and how do you think it would fit in?

In the examples you cited (which are functioning in exactly the same manner as the ones I cited) , the REL of the existing uses to those sites was obviously zero minus the cost to cure - meaning a negative. Savvy brokers even sometimes mention "the value is in the land" or "potential for redevelopment" in their listings on such properties - that's often *independent" of an otherwise average/serviceable condition.

In the examples you cited, those same houses in the same condition would continue indefinitely if they were located 30 miles to the east, right? It's the *economics* of their respective locations that reduces the REL of those existing structures to zero, not their condition.

 

[glenn walker]

George well put I Totally Agree !!!

 

[Terrel L. Shields]

good lord my op title was an abomination. meant to say whats your opinion of effective age (versus physical in the examples).

Just call me captain obvious, but the economic life has to include an analysis of HBU and if any of those need to be dozed and replaced with a commercial building, etc. their economic life could be short. There is a "book" technique that segregates the short term and long term items, ages them, estimates their remaining life and then blends that to make an overall assessment. The physical life is another matter.