Economic Life

[Terrel L. Shields]

You guys aren't actually suggesting pulling data from the Market are you?

Oh, they are pulling it from somewhere alright....for a time I actually held out hope that they were pulling someone's leg...nope. I can see they are really serious. heavy sigh.

Most similar Comp
$130,000
Land value as if vacant $30,000
20 years old actual
RCN = $90/SF (today)
1500 SF
$135,000 RCN
DCN = 130,000 - 30,000 = $100,000
Loss in value = $35,000 ÷ 20 = $1,750 per year
Depreciation rate = 1.3% per year INVERSE of 1.3 = 77 years total life

Your house say 22 years old,
22 x 1.3% = 28.6% of your RCN = $ accrued depreciation

 

[Mztk1]

Oh, they are pulling it from somewhere alright....for a time I actually held out hope that they were pulling someone's leg...nope. I can see they are really serious. heavy sigh.

Most similar Comp
$130,000
Land value as if vacant $30,000
20 years old actual
RCN = $90/SF (today)
1500 SF
$135,000 RCN
DCN = 130,000 - 30,000 = $100,000
Loss in value = $35,000 ÷ 20 = $1,750 per year
Depreciation rate = 1.3% per year INVERSE of 1.3 = 77 years total life

Your house say 22 years old,
22 x 1.3% = 28.6% of your RCN = $ accrued depreciation

That only works if it is a 20 year old house that has zero updating since it was built.

 

[Joyce Potts]

Who doesn't love you guys who continue to seek the 'right' answer. You all think there is always ONE right answer for every scenario.

It's not about the right answer. It's about the answer or value you assert based on your analysis and discussion of the market data. It's about who can provide the most compelling argument in support of the path you chose.

Remember that appraising is art, not a science, until big money can be made on AVM's by data mining appraisal reports.

 

[Michigan CG]

That only works if it is a 20 year old house that has zero updating since it was built.

Not true sir. What he shows is the value now with (opposed to) the Cost New. That depreciation shows depreciation of the property with the updates. Now whether that applies to the subject is a different story. Hopefully since the COMPARABLE is used there are similar updates, thus a reliable (somewhat) approach to the problem.

 

[Fred]

Loss in value = $35,000

Since you brought up pulling it - what loss in value? You have a comp selling for 130. Where did you establish it was every worth 165?

 

[Joyce Potts]

Since you brought up pulling it - what loss in value? You have a comp selling for 130. Where did you establish it was every worth 165?

Now that's good stuff, I don't care who ya are.

 

[Elliott]

Joyce gets it. If math could replicate the market, then
AVMs would have replaced us years ago.

 

[Vivian Bachner]

We have a few 1820s houses around here that the Yankee torches missed. So I use 188.

 

[jay trotta]

Economic life
The period of actual usefulness of an asset. Economic life refers to the period beyond which it is cheaper to replace or scrap an asset than to continue maintaining it. Not to be confused with depreciable life.


That said (and Steve S.-agree to sum) - did some research on a house 1820's in the city, the original owner was a purveyor of goods, his original mortgage was $4,500 at the time. The dwelling is a vintage post & beam and still in great shape, it has not lost any usefulness; the cost to replace this puppy would be more along the extreme side - so how many years would ya'll grant this dwelling ??

 

[Jim Hill]

How about the Extended Life Concept?

You can read more about this concept in any Marshall & Swift Residential Cost Handbook and it is something I have used for years.

When you look at many towns and cities in many parts of the country and see homes well over 100 years old you start to understand the Extended Life Concept because you see it in action.

This subject has always sparked debates on the best method to use but after looking at many of them I find this one makes the most sense.

I know the old story about lenders want something easy to figure but if you explain your reasoning and why you did what you did many come away with a better understanding of this whole concept and why it works.

Here in Florida I have appraised a number of homes over 100 years old and they still look in great shape.

Jim Hill