Age/Depreciation Adjustments in Sales Comparison

[fifteen]

Your comps are 3 years old but your effective age for all is 5? When does effective age equal more than actual age? If you're going the actual age/effective age route, when are the improvements effectively worth nothing? It sounds like you should have done a condition adjustment instead, but at 3 years old they'd have had to have been abandoned for an effective age older than the actual age - actually even that wouldn't do it. Crack house maybe. Do your effective age adjustments line up with the depreciation per year of the subject in the cost approach? I've done reviews where the depreciation rate for the subject in the cost approach is $2,000/yr and the appraiser used $5k a year in the market approach. Totally unjustified. Make your report self contained where it reads the same front to back inclduing all adjustments. Just my consideration worth about 2 cents lol

On older homes that have been remodeled I go first with 1/2 actual age to reflect general good upkeep and updates, and then according to degree of remodeling/updating, to 1/3, 1/4, 1/5, 1/6. I haven't had to go up more than 1/8th. Extremely remodeled/updated where it was 110 years old but looked 15+/- (including the dated foundation).

On another note, if the subject is depreciating at a rate of $2000/yr and the comp is of the exact same age and overall condition, but with $10k in improvements/updates - then that comp is effectively 5 years younger than the subject.

To the OP : Actual age is how old is it without upkeep. Effective age is how old it is by how well it's been taken care of. Actual age an improvement can last without upkeep may be 100 years, but effectively, with the right maintenance and upkeep, it could last longer than that and not really reach 100 years effectively till it's 150.

I'm interested to hear from others how they do it. Good thread

See, this is what we have on AVM's - we see the property. They can never replace that

 

[PropertyEconomics]

Your comps are 3 years old but your effective age for all is 5? When does effective age equal more than actual age? If you're going the actual age/effective age route, when are the improvements effectively worth nothing? It sounds like you should have done a condition adjustment instead but at 3 years old they'd have had to be abandoned for an effective older than the actual age. Do your effective age adjustments line up with the depreciation per year of the subject in the cost approach? I've done reviews where the depreciation rate for the subject in the cost approach is $2,000/yr and the appraiser used $5k a year in the market approach. Totally unjustified. Make your report self contained where it reads the same front to back inclduing all adjustments. Just my consideration worth about 2 cents lol

On older homes that have been remodeled I go first with 1/2 actual age to reflect general good upkeep and updates, and then according to degree of remodeling/updating, to 1/3, 1/4, 1/5, 1/6. I haven't had to go up more than 1/8th. Extremely remodeled/updated where it was 110 years old but looked 15+/- (including the dated foundation)

I'm interested to hear from others how they do it. Good thread

Ever seen a house where the occupants totally trashed it in the first two years of its life? Effective age (if you believe in it) can be older than actual ...

 

[fifteen]

A 5 yr old house burns down, did actual age and effective life/age just meet? It would take a jump through time for the house to be effectively older than it actually is. Actual age/life. How long will the improvements continue to contribute. You're talking a condition adjustment in, I'd say one of the few times that an effective age and a condition adjustment is warranted. A house cannot be older than it is, unless it has a fake id

Ever seen a house where the occupants totally trashed it in the first two years of its life? Effective age (if you believe in it) can be older than actual ...

 

[Michigan CG]

...............A house cannot be older than it is, unless it has a fake id

You are missing a very basic appraisal premise.....effective age and actual age are two very different things. There are homes that may have a physical age of three years with an effective age of 10 years. I have been in them; they are not uncommon here.

 

[fifteen]

let me put it this way. You've seen that disease where young kids look old? 10 yr old kids look like they're 80. It's not that they're effectively 80 because they look it - they're still 10. Educationally or socially they're 5 (maybe 10 in emotional development), . It's a condition that makes them age faster. Condition adjustment. You cannot change your actual age. You can not make a building older than it's actual age because you say it is or it looks that way.
You are 85, effectively 39 -good for you. Actual age is an historical fact that does not change with caprice. It is one of the few things set in stone

The whole premise of actual age versus effective age says that effective age never equals actual age untill they meet in the final dissolution of value. Projected life span is an expectation that something will exist for a certain period of time without care based upon historical data, projected effective age is how long it can exist with care. Effective age will always be the winner in a zero subset due to care

Tim: You can't change actual age. If the subject appears older than actual age, the adjustment is condition. I cannot really change my age, actually or effectively- that is a fact. Unless I have a false id with intent to deceive.

I'm having a few. REAlity is not yours to re-write. Stick to the facts. Most times it is just is what it is. Deal with it. G'nite

See, good thread!

 

[fifteen]

r e d a c t e d

 

[fifteen]

One more thing, can that be reconciled in the cost approach? I use wintotal

You are missing a very basic appraisal premise.....effective age and actual age are two very different things. There are homes that may have a physical age of three years with an effective age of 10 years. I have been in them; they are not uncommon here.

 

[CANative]

Actual Age 3/Effective age 5 (or more)

Scenario 1: 5 yeas ago a novice would-be developer drives through a neighborhood of large houses with every luxury and power wasting convenience known to man. Takes him two years to plan, get permits, and get a half dozen luxury houses built. By that time the economy slows down and the market for conspicuous consumtion homes has cooled off. Three years later it is dead and everyone has gone green. They're building and buying bamboo houses with kitchen counters made out of laminated compressed landfill and powered by windmills and methane collected from a nearby pasture.

While the house was built only 3 years ago, has been meticulously cared for and is in excellent condition it's functionality and market appeal is like houses built 5 years ago.

 

[DMZwerg]

let me put it this way. You've seen that disease where young kids look old? <snip> You cannot change your actual age. You can not make a building older than it's actual age because you say it is or it looks that way.
You are 85, effectively 39 -good for you. Actual age is an historical fact that does not change with caprice. It is one of the few things set in stone

Figure I pose it as a question/example:

Worm, termite and/or water damage

versus

the superior quality of 100+ year old wood​

So, let us suppose a 3 year old house was uncovered during construction and thus the particle or chip board used in its construction swelled and lost strength (but this was concealed from appraisers) and was covered up during construction, then a bunch of termites that were living in some of the stumps nearby decided "lunch!" and moved in shortly after it sold, and finally (due to poor location, lack of a sump pump, and shoddy drainage) the basement regularly flooded each major rainfall and now shows signs of buckling. The actual age is 3 years old, but what could the effective age be? How about its remaining economic life?

Now suppose across the street and uphill a little bit is a 130 year old house made from old-growth pine, oak, etc that was excellent quality when built, has been kept in excellent condition, and has been well refurbished with modern bathroom, electrical, kitchen, etc, within the last 3 years. Note that "old growth" pine could well be almost equivalent to more modern oak and the old oak could be so solid that there really is not a modern comparison. Quality of wood has, for the most part, changed a lot over the years and for the most part modern wood is inferior (twisted grains, more/larger/looser knots, cut across grains, etc) especially compared to much older split and hewn wood. Foundation is solid (brick), and has been well maintained, is dry, and shows no signs of moisture. What could its effective age be? How about its remaining economic life?

It is possible that the former may have a remaining economic life of under 5 years and the latter of well over 40 years ... so then what would be their affective ages?



Now I have comments styled after that old Batman series in my head :blush:
Can fifteen resolve this and still maintain his assertions?
Tune in next week when fifteen says ...

 

[CANative]

old-growth pine

Old growth pine? How long does a pine tree live (lets not bring bristlecone pines into this)? A couple of hundred years perhaps? Compare this to redwoods where it's not uncommon to find trees that were hearty specimens of mature trees during the dark ages shortly after the Goths ransacked Rome. (I'd have made comparisons to when Christ was still alive but that might bring up issues better left in the watercooler.)

I think the term "old growth" is more appropriate when discussing political issues concerning harvesting of redwoods.