Economic Life

[Richard Carlsen]

My only caveat is, when using the Marshall & Swift, you really have to know how it works and be sure a reviewer can replicate it if need be. I don't see many appraisers, for instance, providing the wall heights and ceiling heights in the report, nor the number of plumbing fixtures and rough-ins, nor the floor material percentage breakdown. You can't replicate the M&S without that stuff.

Sure you can. It's all in the report which BTW is called a "Summary Reporting Form." All you have to do is read the silly thing and bingo!; there's all sorts of good information in the report that one could use to reproduce the CA.

What about for a manufactured home ? the one built in 1993 ,looks in great condition inside and out ?

Herein lies a problem with effective age and economic life. I used to use 45 years for mfg housing since based on my observations of older mobiles and double wides in the market, that's about how long the would last. The problem was that if I did a 1980 Mfg with an effective age of 16 years, the resulting "Remaining Economic Life" of 29 years was not enough for the lender to justify a 30 year mortgage even though the house had normal maintenance and would no doubt last longer than 29 years. I realized that this was causing problems for the client. Since we had HUD Codes Mfg housing around for about 30 years with most of them still going strong, the basis for depreciation could be altered to more accurately reflect the reality of the situation and to solve the clients problem. I went to the 60 year depreciation that I use for frame, modular and other site built housing. This was about the same time that the basis for my Condition adjustment in the sales grid became the estimate Effective Age of the property and the comps.

 

[Mztk1]

Sure you can. It's all in the report which BTW is called a "Summary Reporting Form." All you have to do is read the silly thing and bingo!; there's all sorts of good information in the report that one could use to reproduce the CA.

Maybe in your reports, Rich, but not in most. I have reviewed a lot of appraisals in my day and rarely have I seen anyone include the interior wall height of the dwelling (which for block Low Quality to Very Good you multiply the base cost by 1.04 for every foot above 8'), the ceiling height (which is a 1.01 multiplier for every 1 foot about the wall height (which you can't find in the book but have to take the M&S course they offer to hear that), the break down of floor covering on a percentage basis is typically not provided (which can can result in large differences in cost estimates), or the number of plumbing fixutres and rough-ins, which can be guessed at by bathroom count with some degree of accuracy is hardly ever given. When an appraiser is using the 1007 cost form when it is generated by the M&S cost estimator by disk is the only time I have seen it, but that is rare.

Last appraisal I reviewed had for flooring "Carpet/Avg" and nothing else in the report (a beautiful house from the outside by the way, and it had to have ceramic or vinyl in the kitchen); under additional features it read "Subject property is a one story home with 3 bedrooms and 3 bathrooms". Nothing else. Frankly, I don't know if the house had a heat pump system (higher cost) or a forced air system (over $1 less in cost for avg quality). The quality rating in the cost approach was left blank, the effective date of the cost data (the M&S by the way was referenced) was 06/93 as if he got it confused with the limiting conditions revision date, and land value was "derived through the extraction method". There is no way to "replicate" the cost approach using this data.

I wish I could say I just got a bad report to review, but this is typical with the reports I see. And on this one in particular, I could not replicate the cost approach to within $12+/sf because it lacked the data necessary.

Personally, a good number of the appraisers are putting M&S as their source and then making up the rest, which can be shown by them not having a clue as to what the date of their source is.

As for me, I make sure every thing you need to replicate my numbers are listed in the immediate cost approach section. From wall height multiplier, to plumbing fixtures, to the pages referenced in the M&S by page number, it is all there.

 

[Rufus]

<snip>...you multiply the base cost by 1.04 for every foot above 8'), the ceiling height (which is a 1.01 multiplier for every 1 foot about the wall height (which you can't find in the book but have to take the M&S course they offer to hear that)...<snip>

On page B-19, my M&S book shows:

Notes: (1) Add or deduct 5% for each foot of variation from the 8' story height base.

 

[Mztk1]

But that is segregated costs. When doing the square foot method, which is what most appraiser do and what I do on a residential property, you can turn to any page "1" of any of the quality pages and read near the bottom of the page in bold:

"NOTE: Base interior wall height is 8' (except for Excellent Quality). For each foot of variation, add to or deduct from the base cost only, 4% for all masonry exterior walls including masonry veneers and 3% for frame exterior walls"

For Excellent Quality it is any wall height above 10' and you add 3% and 2% per foot respectively.

 

[JSmith43]

Notes: (1) Add or deduct 5% for each foot of variation from the 8' story height base.

Home with 3' ceiling=25% deduction

 

[Richard Carlsen]

The requirements are that the reader must be able to reproduce the CA based on the information contained in the report for sources. It does not say that you have to itemize your calculations in the reporting form. Those can be in your work file.

As to the reader (assuming an UW or Review Appraiser), I seriously doubt that there are many of these who can accurately use the M&S to reproduce the CA based on the local market condition and the quality levels. Most just do not have the expertise. A review appraiser who has not been in the field in 10 years and is sitting in an office 1100 miles from the subject in a market he has never even visited, in my estimation, is only marginally qualified to pass judgment on anything but the basic elements of an appraisal. And UW's have little or no experience or expertise in developing appraisals but only at determination of inclusion of required data and conformity to assignment conditions. They do normally not have the required education or experience to pass judgment on anything but what is laid down in the assignment conditions.

And I tend to agree that there are a whole lot of appraisers out there that cite M&S as their source of cost data and then pull some arbitrary number out of thin air or from where the sun does not shine that will make the C&A work.

 

[Mztk1]

The requirements are that the reader must be able to reproduce the CA based on the information contained in the report for sources. It does not say that you have to itemize your calculations in the reporting form. Those can be in your work file.

Actually what the report says is:

"Provide adequate information for the lender/client to replicate the below cost figures and calculations."

The only way they can replicate your calculations is if they know where you got that information AND what was considered in those figures. If you do not provide the adequate information, citing the source, they cannot do it.

I will grant you that most wouldn't be able to replicate the cost figures even with all the information, but a review appraiser who is competent and has an M&S handy, should have enough information in front of him so that he can replicate the figures, even if he lives in India.

 

[Richard Carlsen]

Actually what the report says is:

"Provide adequate information for the lender/client to replicate the below cost figures and calculations."

The only way they can replicate your calculations is if they know where you got that information AND what was considered in those figures. If you do not provide the adequate information, citing the source, they cannot do it.

rep·li·cate
1. To duplicate, copy, reproduce, or repeat.
2. Biology To reproduce or make an exact copy or copies of (genetic material, a cell, or an organism).
3. To fold over or bend back.



Actually, replicate and reproduce mean the same thing.

If you put all of the information and calculations in the report, replication or reproduction is a moot point because they exist. The spirit of the requirement, IMNSHO, is that if the review appraiser or reader wanted on his own to verify your figures, he/she could get a reasonable similar cost using the same data source. This is, after all, not biology. I seriously doubt that, without every subtle item included within the report, that an exact replication of the dollar/cents amount of the cost contained within the CA could be developed.

 

[Mztk1]

I wasn't parsing the difference between replicate and reproduce, it was "provide adequate information" that I think is at issue. What is meant by "adequate information"? I don't think you should itemize every last detail, but certainly there are about 4 or 5 items that are not provided for in the report that could sway a cost estimate by up to $30 or $40 plus a square foot.

Wall heights are one. If I have a one story house that has 12' walls (which is not uncommon in my markets) and it is a 2,400sf, good quality, CBS house not knowing the wall height can affect the results by close to $15/sf alone.

If I have a good quality Travertine floor that takes up 55% of the floor space in the house (everywhere but BRs say), you'd be looking a $4+ psf loss or gain for every 10% the reviewer is off trying to replicate.

By the time you get done, these things can add up significantly and even on a modest house can effect the cost to build by $8 to 15 easily. It doesn't take much to disclose your wall height factor, and your floor % estimates and couple of other small things like fixture count and identifying if the house has a heat pump system instead of a forced air system.

The reason for the change in the cost approach to have appraisers provide enough data so that it could be replicated is because everyone was well aware that many appraisers just PFA'd the figures. What you suggest, not providing enough information to replicate but only enough so the reviewer can guess and guess and guess until they duplicate the figures doesn't solve a thing. In fact it gives license to PFA because eventually, if you play around enough, nearly any figure can be duplicated.

I guarantee that if you knew my property was in a mild region where no one has floor insulation, but we are in a Z3-Z4 wind zone area, you could take my report and replicate the cost approach to within $.25 on the first try, every time, barring a calculation error. (I need a little bit of room due to rounding.) It doesn't take much. It doesn't take a complete itemization. It just takes a couple of extra bits of information to be provided, like the form is asking for.