Effective age / actual age

[greg palacios]

Besides market extraction, I would like to hear different options on how to make adjustments for effective/actual age on the sales grid. I was taught by my father one way but I hear of several other techniques. I am trying to try and create a flawless appraisal but need other assistance. thanks!

 

[CANative]

I would not make adjustments for "effective age" in a sales grid.

 

[greg palacios]

Im finding out that most appraisers are not adjusting for effective age now. But what about actual age? Is market extraction the only other way to adjust? Is using a percentage another way?

 

[Michigan CG]

Effective age is basically condition. Adjusting for both would be double dipping in many instances.

 

[vanguard]

I agree with Greg & Michigan. In addition, you will never have a flawless report because you will have difficulty in estimating all forms of depreciation.

 

[mikeinpittsburgh]

There is no such thing as a flawless report. It's an opinion. I could find flaw because I have a different opinion.

Just my opinion. Which could be flawed.

 

[Metamorphic]

I provide an effective age number to give the reader an idea of how modern and current the property feels and how worn it is. Mostly its kind of a "this property feels 5 years older than the subject, that one is kind of 5 years newer feeling"; and typically I provide those EA numbers in 5 year jumps.

I adjust based on condition however.

 

[jtinmichigan]

I basically agree with Michigan CG on the "effective age is basically condition", however, I have usually looked at effective age as the larger ticket items, i.e. it may be 30 years old, but has a new roof, siding and windows, which to me lowers the effective age. It may also need some interior paint or other small items of deferred maintainence, which by my thought process is condition. So, sometimes both adjustments may be warranted. It can be a slippery slope though and one has to be carefull not to double dip on this.

 

[Mike Kennedy]

The reason the GSE forms were revised (deleting effective age and leaving ONLY actual age) was due to extraordinary misrepresentation of property condition resulting in grossly over-inflated value opinions.

Effective Age is an element of Condition. While it is not prohibited to use EFF/AGE as a single line adjustment, two separate adjustments is the more credible, reliable, and reviewable way to go.

 

[Terrel L. Shields]

Is market extraction the only other way to adjust? Is using a percentage another way?

imho, market extraction is the only "defensible' way of calculating effective age and it 'looks bad' when you include all forms of obsolescence, i.e.- in many markets a high percentage of the obsolescence is economic (external) obsolescence due to bad market conditions.

You can use a percentage but again, for it to be defensible, that percentage has to be developed using a market extraction method.

For the most part, many appraiser simply 'eyeball' the "effective age" but cannot tell you why other than if they use the actual age and the costbook total life tables it leads to a bad outcome... Say, 30 year old house, sells for $100,000 and the RCN is $100,000. The books says 50 year total life, straight line, the depreciation is 60% while, clearly the lot value (say 20%) suggests that there has only been $20,000 depreciation in 30 years. That, in itself, implies well over 100 years total life ($667 annual lost divided into $100,000 = 150 years) Using the actual age would indicate a dwelling of only $60,000 value including the lot.

But a 30 year old dwelling is far more likely to have been updated, remodeled, etc. and in reality, depreciation is not a straight line, but rather a curved (hyperbolic, or more likely power law) line. In such case, the effective age of 10, using the 50 year scenario, would suggest 20% deprecation not 60% and therefore would "work out" with the existing 'real' numbers - RCN, lot value. The effective age line isn't smooth but jumps with each remodel and update whether we appraisers actually can document it or not.

Until that first update, the actual age and effective ages are likely to be close, but after about 10 years and items get replaced and updated, the numbers go "out the door" and frankly, the reality is that "condition" rules when all other things are reasonably equal.