Comments - If Remaining Economic Life Is Less Than 30 Years

[Tumbuktu]

The property is 80 Years old and has been routinely/adequately maintained. C4 Condition and Q4 Quality. Effective Age of 40 years leaves it with Remaining Economic Life of 20 Years. Comments on condition and marketability are required by the lender. I would appreciate if someone can provide a 'Comments Template'. Also any additional guidance and feedback would be appreciated.

 

[DWiley]

The property is 80 Years old and has been routinely/adequately maintained. C4 Condition and Q4 Quality. Effective Age of 40 years leaves it with Remaining Economic Life of 20 Years. Comments on condition and marketability are required by the lender. I would appreciate if someone can provide a 'Comments Template'. Also any additional guidance and feedback would be appreciated.

What method(s) were used to establish the estimated effective age and economic life? If analysis of actual market data led to those results, then it is what it is. However, in such cases I would expect a lender will likely require the report to contain support for both EA and REL.

 

[gregb]

If the subject improvements are likely to be updated and/or remodeled in the future (example would be other homes in the hood) then the remaining economic life estimate could be 30+ years. There are local neighborhoods with residences originally built in the late 1880's that with proper maintenance, updating and remodeling are likely to live beyond the life of any living appraiser.

 

[Tumbuktu]

If the subject improvements are likely to be updated and/or remodeled in the future (example would be other homes in the hood) then the remaining economic life estimate could be 30+ years

Is there any link to it. (like Fannie Mae guidelines etc). Would appreciate guidance.

 

[DWiley]

Is there any link to it. (like Fannie Mae guidelines etc). Would appreciate guidance.

It is hard to guide you without knowing how you derived the EA (and REL). Was that extracted from market data? Did you just use a chart from some source ? Is it simply an estimate?

 

[Tumbuktu]

It is hard to guide you without knowing how you derived the EA (and REL). Was that extracted form market data? Did you just use a chart from some source ? Is it simply an estimate?

Effective Age is an estimate based on Condition and Quality of the subject.

 

[gregb]

This Fannie Mae link only indicates there is no need to estimate Remaining Economic Life. Sure there are other Fannie discussions. Do a search on the AF, there were other threads with the same issue.

https://www.fanniemae.com/content/guide/selling/b4/1.3/05.html

 

[DWiley]

Effective Age is an estimate based on Condition and Quality of the subject.

I would suggest that this statement is not supported by major appraisal texts (e.g. The Appraisal of Real Estate). Consulting such a text will provide detailed instructions on how to extract EA, TEL and REL using market data.

I would also suggest that prior to sending a report to a lender with the REL noted in the OP, and knowing the crap storm that will likely ensue, one would be well served to have supporting data and analysis.

If you want more details, see the recent thread on effective age or drop me a PM with your email address.

 

[Elliott]

Why does it have a 40-year effective age? How was that developed? Are there other C4 houses in the neighborhood that have similar effective ages?

Its been my observation that a sad, old house can range from 21-years to 30-years, but frequently are rehabbed at 30 to 40.

And, why are you using the Cost Approach on a house with an effective age of 40-years?

 

[Michigan CG]

What method(s) were used to establish the estimated effective age and economic life? If analysis of actual market data led to those results, then it is what it is. However, in such cases I would expect a lender will likely require the report to contain support for both EA and REL.

^^^^^^^^^^^^^^^^^^

This guy is correct.

How did you establish the effective age and how did you establish the remaining economic life?

There are textbook ways to do this and "my opinion" is not one of them.

Any appraiser who is trying to justify what you are saying had better be able to provide about two pages of evidence to support their opinion.

Effective Age is an estimate based on Condition and Quality of the subject.

Based on WHAT?