Actual Age/effective Age Vs. Condition

[CANative]

I'm reviewing a repot. It is typical of some that I've been seeing recently. In addition to making inconsistent adjustments for actual age/effective age it is also making upward adjustments for condition. In my opinion this is double dipping. Also in my opinion, this area has such limitations on both the quality and the quantity of data, that trying to put an effective age on a comparable and then making an adjustment is not supported. How does one estimate effective age on a house they haven't seen except for a couple of seconds from the street? Especially microscopic effective age differences on older houses.

How many of you use "effective age" as a source of adjustments?

Side note issues on the report under review:

Inconsistent adjustments:
Subject A41/E21

Comp 1 A40/E30 +$9,000 (pluse a $20,000 upward adj. for condition)
Comp 2 A27/E14 -$7.000 (superior waterfront property sold for $100,000 more)
Comp 3 A25/E13 -$8,000
Comp 4 A28/E14 +$7,000 (Listing in an arguably better neighborhood at $60,000 more)
Comp 5 A27/E20 No adjustment (Listing on subject's street at less than the subject is in contract for with an additional $10,000 upward adjustment for condition)

Comps 3, 4 and 5 adjusted upward for flood zone (no support for this and I've been appraising in that neighborhood for 3 years) No adjustment for the high priced waterfront which is in a flood zone. -$20,000 for watrfront location when $100,000 would have been more appropriate.

The only sale that "supports" the $269,000 contract price is the waterfront property. All other adjusted values are wildly different. None have anything to do with the $269,000 figure. The cost approach conveniently comes in at $270,000 but the appraiser put in a BS "As is" value of site improvements of $35,000 after using full boat figures on the dwelling costs ($150 per sf which includes soft costs, taxes, fees, permits, marketing, EP etc.)

Side note to side note:
The selling agent is a snobby and obnoxious big league hitter from Sonoma County. I'm sick of seeing his scrunched up face in my newspaper everday. Last year when he found out I was to appraise a property in this County that he had listed he forced the lender to use one of "his" appraisers.

 

[Jim Bearden]

I agree that using condition and age (I use actual) can be double dipping. Here in the Denver area most homes are in conforming areas so age is rarely a factor. Some older homes (1800's) are subject to infill which dates to early 1900's occasionaly we find much newer infill but that doesn't happen very often.

The bigger issue tends to be that you can have several developers in the same subdivision and differing quality and prices. Ifind that when they double dip the value is usually to high.

BTW what is a repot

 

[JSmith43]

Side note to side note:
The selling agent is a snobby and obnoxious big league hitter from Sonoma County. I'm sick of seeing his scrunched up face in my newspaper everday. Last year when he found out I was to appraise a property in this County that he had listed he forced the lender to use one of "his" appraisers. 

Are you sure you want to decree your potential prejudice/conflict on a public forum? I'll delete my post referencing your quote if you decide to change your mind.

Regarding your main point: That whole battle over adjustments and allegedly extracting them from the market when such scant data is available is a proud tradition of appraisers, but is bogus. You are right to know it is generally indefensible since it is typically presented as if it were extracted from the market using a process that is repeatable and statistically significant.

Many times, adjustments make common sense, yet they cannot be proven. I suggest that appraisers should fully disclose the inability to quantify such adjustments with a statistically adequate model, given the nature and quantity of available data.

As to condition adjustments: If MLS data describes updates and/or quality in sufficient detail, one should be able to assume the accuracy of the statements, on a selective basis. In the current environment, I would explain my reasoning most fully. Some agent descriptions were laughably unreliable and some had a predictable amount of polish and spin on their descriptions, in other words, worthy of an assumption that they were reliable descriptions.

Some appraisers adjust for actual age under age, some adjust for effective age on the same line.
If they adjust for condition in the age line using effective age estimate, then logically, they should put a note in the condition line like "See Age/E", or at least leave condition blank or reference an addenda.

Are you sure comp 4 is plus $7,000 and not minus $7,000? I assume you are accurate. The guy seems to have a plus where he needs a minus to be consistent with his effective age adjustments.

That ought to stir some responses for you. :rofl:

 

[Dan Leggett]

How many of you use "effective age" as a source of adjustments?

I'll take the first flame. In my area with no tract development or model matches and sometimes lucky to have maybe 5 or 6 similar sales in the same county, myself and two competitors try to pay special attention to an improvement and it's related componants ages. And yes we use the data in back of Marshall & Swift to support our estimates. If one of us wasn't involved at the time of the transaction we see who has the latest data file plus interview buyer/seller/broker/someone who was involved in the sale.

Very seldom do I double dip. Generally I cite my rating of the condition followed by the ^ symbol pointing up to the Age line. Years ago during a SREA course/seminar we were taught to hand draw a bracket between the two entries on our type-written forms.

However, after reading several other reviewers' posts, it seems this is a favorite honey-hole for the Predetermined Value folks. Oh well, back to the drawing board on how to handle the Age/Condition conumdrum when very little data exists.

EDIT: Before the flames start, I'm not saying I/we/they always adjust based on Actual/Effective Age differences, only when something is obviously missing from mix. We are only trying to document the data as well as we can.

 

[Terrel L. Shields]

Eff. age can be calculated and condition can be adjusted based upon the view as curable or incurable. No one suggests effective age is a panacea for making an adjustment.

I have had instructors say that effective age (as derived from market extraction methods) are an overall adjustment and "condition" would be a curable item that cannot be effectively extracted from the data without making an allowance for it.

Using the least accurate method of simple observation, one could estimate the effective age. In my market, the assessor does not have the ages of buildings except the very newest ones. So when was it built? How old is it? In Oklahoma, most of the tax offices have a year built checkbox.

Remodel, etc. I try to place my effective age consistent with what other houses with easier ages to calculate are.

Effective age can be as easily determined as condition. Both are more subjective that they are objective.

A friend just put his 50 yr. old house up for sale. It will sell for $75,000 in an area lots are selling for $15,000. About $60 per SF for a house you could build for $70/SF. 14% deprec. ÷ 50, inverse is 357 yr total life!!! Maybe we had better rethink that.

No additions, but over the years central heat and air was added, vinyl siding, insulation, 220 electrical for washer/dryer. The hardwood floors were covered with carpet dated in the 60's or early 70's.

He painted the walls, peeled the carpet out and buffed the hardwood floors, spent about $3,000. Would you have been able to estimate that repair? What is the age of a well maintained older home without any insect damage, etc. in a desirable neighborhood? Maybe this just calls on our judgment. I aver it to be about a 10 yr. effect. age and 50 yr. remaining life. I definitely will not use 60÷357. It makes much more common sense to me to think that 40 yr. from now the house will be obsolete or gone, and it ain't a prayer of being there in the year 2300.

Having said that, I would find similar older homes that appear to be in similar condition and eschew making either age or condition adjustments when possible. I certainly understand that can be a difficult propostion in a rural town of 2000 with only 10 viable and varied sales available.

 

[wyecoyote]

Typically on about 90%+ of my appraisals. I use actual age and consider this only for long lived items. So if there was some major remodeling of the subject or comparables at one time in the past I would perhaps use effective age.

The condition I consider for short lived items.

 

[Chris Colston]

I have always contended (and was taught by Joe Minnich, now with Fannie Mae) that effective age and condition went hand in hand. I never understood why there were two lines. I always combine the two into one line item adjustment and include brackets ( } ) to show that the two lines go together. In my comments I state that the adjustment is a combined adjustment. I also quote the MLS listing, for the comps, where the upgrades updates, new roofs, new windows, etc are noted by the listing agent.

Right now, because of hurricane damage this method works very well. For example, my house was built in 1977. It has a 3 month old roof, new dry wall and paint in the livingroom, upgraded ceramic tile throughout, new hurricane shutters and new central a/c, new electric wiring to support the generator. It was painted on the outside 3 years ago and the screen porch was enclosed with hurricane resistant windows, the A/C was extended and the flooring also is the same ceramic tile.

We have other houses here that are the same actual age, that the storms destroyed and these have been totally gutted and rebuilt except for the exterior walls. There are others that are the same age and only received minor damage. The market, looking to buy, in my neighborhood would most definately consider the gutted and rebuilt house superior to mine and mine superior to the house that did not receive a new roof, only a patch, etc. The rebuilt house also has a lower effective age than mine and mine is effectively younger than the house that was patched.

Why not report it that way??

A: 28/E: 5 vs A: 28/E: 10 vs A: 28/E: 15 with conditions of Good, Avg-Good and Average. Taking only 1 adjustment based on the effective age. BTW..the gutted house is not condsidered as NEW because some of the original house and systems still exist and are 28 years old.

OK, I've got my flame retardant suit on........(been it doing it this way for 18 years with 3 different supervisors [SRA, SRPA and MAI] who agree with this method)

 

[CANative]

Originally posted by rogerwatland@Jul 17 2005, 02:16 PM

Are you sure you want to decree your potential prejudice/conflict on a public forum? I'll delete my post referencing your quote if you decide to change your mind.

No that's ok Roger. My "bias" only lasted a couple of minutes. I am now focused on the task at hand and have returned to the required degree of objectivity.

Terrell... I don't have a problem with estimating the effective age of a house which I have inspected up close, but how can an appraiser come up with specific number of years for effective age for the comparables?

I'm reviewing my field notes and the two most similar (in exterior condition) were comps 1 and 4 which both had postive adjustments. Comp 4 agent comments raved about a pristine beauty with recent updates.

Side notes on the review: I've noticed when reviewing reports that inconsistent adjustments are usually (almost always) the result of stroking a report to make the magic numbers work.

 

[Thomas N. Morgan]

Greg,

I will admit that I have occasionally had to use the concept of effective age. It sometimes comes in handy. One example: I was appraising some small, attached condos built over a period of 4-5 yrs. They looked just alike, inside and outside Same design, same construciton materials. The differences, if any, were in year built and condition. We had to show effective age to show that year built did not, in our view, affect value, as perceived by the typical buyer. (Now, in all of myreports, I post year built in the grid instead of age).

Effective age, as a concept, is too fuzzy to use in appraising, except in certain circumstances. When applied in appraising, the concept is often badly abused.

There have been appraisers who reacted to my criticism of effective age with ferocity ... as if I had attacked their religion.

Appraisers like to use it. It's easy. It works. It can never be proven or dis-proven. (Incidentally, the mathematical formulas they taught to aspiring SRA's as a way of deriving the effective age always involved the insertion of an assumed number).

Greg, I guess you have noticed that in the market grid analysis section for the Fannie 2000, it specifies ("Year Built") There's no place there for effective age. Fannie Mae finally caught on.

The effective age concept did not arise in appraising, but somewhere else, as some sort of accounting term, I think. For a long time I tried to find out how this term crept into appraising, who first used it in a textbook or other publication, and how it could be property applied. Have not found its origin. No where does "effective age" appear in the 1963 edition of Dr. Alfred A. Ring's textbook, The Valuation of Real Estate. Dr. Ring was an MAI, SRA, and Professor of Real Estate in the College of Business Administration at the University of Florida, Gainesville. Nor does it appear in some of the older texts.

One way to think critically about effective age is to change effective age to "effective year built". Let's say you have a home built in 1988. It is 17 years old. You would like to say it has an effective age of 10 years. Is it realistic to say that effective year built was 1995? You are telling the reader that although built in 1988, it looks just like houses built in 1995. Very few readers would fall for that one. Effective age works better. It's soft soap, easy.

Some time age, one of the posters here said effective age is an economic concept. I won't argue with that. By its use, one is defining a home's value by the use of effective age.

Regards,


Tom

 

[Tina]

I tend to align with Chris' thinking.

Subject:
Age: 28 Yrs/Eff 12-15 Yrs
Condition: Abv Avg/Good

#1
Age: 34 Yrs/Eff Inferior
Condition: Avg/Abv Avg

#2
Age: 20 Yrs/Eff Superior
Condition: Good

#3
Age: 25 Yrs/Eff Similar
Condition: Abv Avg/Good

I estimate the effective age of the comparables based on interviews with the agents involved, the MLS "show sheets" and my observation of the comparable.

To calculate the condition adjustment, I use the disparity in effective ages between the Subject and comparables.

This market seems to recognize about 1.5% per year, based on MPA.

Nomex on!

TB