Deferred Maintenance or Immediate Physical Curable

[Will Granger]

I have a question. I here appraisers talking about "...major deferred maintenance..." and I think to myself "Don't you mean physical curable?" I think I learned that deferred depreciation were items that were not necessarily at the end of their physical life: the proverbial 5 year old 15 year life roof for example. Isn't that deferred depreciation? If the house has peeling paint and bare wood showing, I'm pretty certain that is physical curable needing immediate repair.
I have corrected, jokingly, some of my friends in the business and I'm wondering if I am losing my mind. Let me know. I've got to study up now on whether to plus or minus and adjustment if it's superior to the subject........ :wink:

 

[MAC]

I have never heard the term" deferred depreciation. Aren't you really dealing with the age life method of long lived and short lived building components. Deferred maintenance is usually but not always curable. Long term like the roof is usually not.

 

[Tom Hildebrandt]

Will

My cut. Deferred maintenance is that which should be fixed but has not been fixed. That is to say, it must be both physically curable and economical to repair or replace. A roof with an life span of 15 years that is 10 years into its economic life would have depreciation that would be physically cureable but most would consider that it would not be economical at this point in time to replace the roof.

If the same roof had a leak, and the leak were not fixed, the leak would be deferred maintenance. If the roof had multiple leaks due to deteriorated condition that made replacing the entire roof economic sense, and you did not replace the roof, the entire replacement would be deferred maintenance. You would also have depreciation data that would indicate that this type of roof had an economic life of 10 years rather than 15 years.

By the way, what did you decide was the correct answer to your adjustment question? I can never get that one straight.

Best regards

Tom Hildebrandt GAA

 

[xmrdfghap]

<span style='color:brown'>Deferred maintenance has always meant to me those things which need to be done to keep the building functional that have been deferred. Changing the oil in my truck is maintenance. Deferring that simply means I postpone it until sometime in the future. Is it physically curable? of course. All you have to do is perform the maintenance that was deferred. But physically curable, again, to me, means something has gone past the maintenance stage......I deferred changing the oil in the truck until the motor seized.....changing the oil won't help.....it is still curable by replacing the motor, but the life of the truck was limited by deferred maintenance. Is it economic to replace the engine is the next question. If the truck is worth $2,000 with a good engine, and it costs $2,500 to replace the engine then it is functionally obsolescent....it can be cured, but it is not economic to do so.

I frequently use accelerated depreciation in accounting...that is what the Section 179 expensing of assests is all about......but am not sure what deferred depreciation really means. Depreciation means to use up. According to the IRS, a computer has a "usable life" of 5 years. Thus you are allowed to depreciate the cost of that computer over 5 years (providing you don't expense it through Section 179). Using a straight line depreciation you would "use" 20% of that computer per year. At the end of 5 years, it is used up.

Deferred depreciation would mean you "use" the computer for the entire 5 years but you don't write it off until the end of that period.....and again, speaking from an accounting position, you would not carry the depreciation forward (you would still allocate usage to the period in which the asset was consumed), but you would carry forward the expense created by that depreciation.

As I think through this, depreciation is a function of usage and the only way to "not use" something is to set it aside and not use it. An analogy can be made with a case of toilet paper. The case has 24 rolls in it, and you use two rolls per month. Thus the paper is depreciated (used up) at the rate of 2 rolls per month. If the case cost you $24.00 and you use up $2.00 of it per month, then the case it self depreciates at the rate of $2.00 per month. If you are on an accrual system, you have to allocate that $2.00 of expense to each month. If you are on a cash basis, you allocate the entire $24.00 expense to the date you purchase it. I don't think you can defer the depreciation....you can only defer the expense. And if you can't defer depreciation in accounting, why would you be able to in appraising?

Deferred maintenance really has no bearing on depreciation.....except that if you defer maintenance, it MAY depreciate (be used up) faster.

</span>

 

[George Hatch]

I dunno about the term 'deferred depreciation', so I have no comment about that. I do have an opinion about the term 'deferred maintenance'.

Looking at it from a purely PC point of view, the word 'maintenance' pertains to the activities of the residents or owners of a property, whereas the word 'condition' refers more to the property itself. I have heard of clients objecting to the term 'deferred maintenance' because of perceived exposure to fair lending claims. The solution to that is to use a physical condition rating (such as fair condition), usually with a reference to the basis of that rating, (fair condition when compared to other properties in the neighborhood). Maybe even throwing in an estimated cost to cure so that the rating can be quantified and put into perspective.

That said, I still occasionally use the term 'deferred maintenance' in some of my non-residential reports. I dunno why though. I should stick to a physical condition rating and an estimated cost to cure.

 

[airphoto]

Here's a term that's prolly gonna send everybody straight up, as it's entirely subjective: "Normally Marketable Condition"

Any maintenance necessary to bring subject into "normally marketable condition" is deferred maintenance. The presumption is that our comparables, being recent sales, are either in normally marketable condition or close .. other than some repo's most people clean up their property when interested in selling it ..

What say ye?

Cheers!

 

[Will Granger]

Very good!! I am getting help. There is deferred curable and deferred incurable short-life and long-life. Deferred curable is an item needing attention now that the owner has deferred. Deferred incurable short-life refers to an item that has experienced wear that is not economically feasible to replace at the present. Deferred incurable long-life refers to the structural components of the house that are not feasible to replace.

Hey. You people are getting me interested in the art of appraising again. Thank you for being out there. I need to get out of here and go do some work. I appreciate the lesson from SREA 101.

 

[xmrdfghap]

Here's a term that's prolly gonna send everybody straight up, as it's entirely subjective: "Normally Marketable Condition"

Any maintenance necessary to bring subject into "normally marketable condition" is deferred maintenance. The presumption is that our comparables, being recent sales, are either in normally marketable condition or close .. other than some repo's most people clean up their property when interested in selling it ..

What say ye?

Cheers!

Do you consider replacing an old dishwasher with a new economy model ($199 at Best Buy sort of thing) bringing it to normally marketable condition? or does the mere presence of a working dishwasher meet the need?

 

[Farm Gal]

Here's a term that's prolly gonna send everybody straight up, as it's entirely subjective: "Normally Marketable Condition"

Any maintenance necessary to bring subject into "normally marketable condition" is deferred maintenance. The presumption is that our comparables, being recent sales, are either in normally marketable condition or close .. other than some repo's most people clean up their property when interested in selling it ..

What say ye?

Cheers!

Bill: You are prolly right about such a subjective phrase setting us professional appraisers straight up, but 'folks' (you know like buyers and sellers), do use that basic concept in thier buying and most selling decisions: attempting to acquire or project that warm and fuzzy feeling that says "BUY ME, I won't be a money pit!!"

I think that is the part that makes MY job interesting!

Do you consider replacing an old dishwasher with a new economy model ($199 at Best Buy sort of thing) bringing it to normally marketable condition? or does the mere presence of a working dishwasher meet the need?

Greg:
I saw someone take a perfectly good near new Bosh (with stainless interior chamber) out and put a cheap Bestbuy close-out in: because the front had been whacked by the kids a few too many times when they climbed on a chair to get a glass out of the cupboard above... unfortunately I was the SECOND one down the street behind the guy with the pickup truck... sigh.

THAT is where we professionals are supposed to doour thing: but how many of YOUR competetors make a phone call to a (admittedly biased) RE agent to ask about condition???

Lee Ann in KS

 

[airphoto]

[/quote]

Do you consider replacing an old dishwasher with a new economy model ($199 at Best Buy sort of thing) bringing it to normally marketable condition? or does the mere presence of a working dishwasher meet the need?
[/quote]

Actually, Greg, I don't even consider a dishwasher in a valuation at any price/value. Did have one homeowner who'd replaced a perfectly good operative security system for one of his choice (at $5,000) and felt that he'd added $5,000 to the value of his home. Was "disappointed" that I didn't put any value at all on his security system ..