Calculating Remaining Economic Life

[Elliott]

TS said, "Therefore each house addition, upgrade and repair decreases effective age and increases TEL."

This house has had virtually no upgrades and is 400-years old. Just normal maintenance. Speaks for using tile roof and a good, thick, slightly angeled stone foundation. : )

 

[Meandering]

it is all about quality of construction.

And the contributory value of gargoyles at the peaks.

.

 

[ucbruin]

Since REL is based on economic life....
And since economic life doesn't necessarily have to be a standard...
Is REL just a crapshoot????



https://www.investopedia.com/terms/e/economic-life.asp

 

[Meandering]

Since REL is based on economic life....
And since economic life doesn't necessarily have to be a standard...
Is REL just a crapshoot????



https://www.investopedia.com/terms/e/economic-life.asp

Depends on the intended use of the estimate.

For teaching and testing, it is specific, and in my opinion has passed it's own economic life.

But hey, you only get 8 hours to take the test and not all day to answer one question.

So, it is still useful in the elimination rounds.

.

 

[Terrel L. Shields]

Is REL just a crapshoot????

You can estimate it by simple empirical methods. No, it isn't rigorous math.
http://www.appraisers.org/docs/defa...pment-of-effective-age-estimates.pdf?sfvrsn=0

http://aresjournals.org/doi/pdf/10.5555/rees.5.1.2425287106365140

 

[George Hatch]

What people lose sight of a lot is the obvious - that "economic life" is literally an economic construct. Not primarily a physical construct. You're not measuring the actual decline in costs, you're measuring the market's reaction to those conditions.


I have 2 reviews I'm performing on homes up in the Hollywood area - both involve residential structures that are in excess of 100 years old, on 7500sf lots that are zoned for multi-family with 1500sf/unit maximum densities - meaning that in theory each parcel is good for 4-5 units. The existing improvements are only now approaching the end of their respective RELs, and if they were located 4 miles to the south they might go for another 20-30 years and possibly longer than that.

It's not the physical condition that changes, but the prevailing market conditions - the economics - that are different. The underlying site values on these parcels are approaching the value-as-improved, and at whatever point the improvements stop adding value the sites will be redeveloped.

So really, the critical question isn't "what's the effective age?", it's "what's the remaining economic life of these improvements on this site within the context of what's going on in this neighborhood"?