Effective age of non-habitable house.

[Susan Klimaszewski]

On a REO appraisal what would ya'll put on page 1 of the URAR where it asks for effective age when the 24 year old subject was foreclosed on midway through what appears to be a flip. The kitchen is totally gutted, the master bath is functional, the 2nd bath has no sink. There are about a bazillion holes knocked in walls, several windows are broken out and the vinyl floors look like someone had a knife throwing contest. But!!! the garage door was new and the doorbell worked!

 

[Peter LeQuire]

Deceased.........

 

[Jerry Bone Jr]

Effective age can be guesstimated. Then use the age/life method to calculate the depreciation. OR Depreciation can be estimated. Then use the age/life method to calculate the Effective age.

 

[CURT VAN HOOSER]

Assuming the kitchen and bath were complete and there weren't a "bazillion holes" and broken windows, what would your impression of the effective age be? Is the overall shell (roof, exterior walls, foundation) in reasonable condition? I don't suppose you have comps that are in similar condition?

 

[Susan Klimaszewski]

Assuming the kitchen and bath were complete and there weren't a "bazillion holes" and broken windows, what would your impression of the effective age be? Is the overall shell (roof, exterior walls, foundation) in reasonable condition? I don't suppose you have comps that are in similar condition?

The house is structurally sound overall with a decent roof. The interior, besides the kitchen being gutted is a matter of new carpet and vinyl, a few new doors installed finished all the 1/2 done trim work around doors and windows and all walls, ceiling and trim being painted. HVAC is original to the house.

Giving an effective age in a repaired condition would be no problem but this is a REO and they want effective age as-is. I'm leaning toward an as-is effective age of N/A.

Nope, no comps in a similar condition. This neighborhood is a prime area for legitimate flippers (inexpensive homes nearing 25 years old) so I have 6 comps to chose from that were rehabbed for sold comparables. Excellent market data for refurbished homes however none of the currently active comparables have a condition as bad as this one does so there will have to be adjustments for condition anyway.

Ocwen is used to that in this market area. As stupid as it sounds, my one and only question is the effective age as-is.

 

[CANative]

Effective age of a property is its age as compared with other properties performing like functions. It is the ACTUAL AGE less the age which has been TAKEN OFF by face-lifting, structural reconstruction, removal of functional inadequacies, modernization of equipment, etc.

Since the house is a prime candidate for fixing and flipping I would call the effective age the same as the actual age.

 

[Terrel L. Shields]

Cost to cure might 'tell you something'...once cured what would be comparable (flipped?) properties effective age. Say, 1250 SF and $25,000 fixes the problems. A nearby rehab house sold for $100/SF. It was 25 yr old. RCN = $125/SF = 1% annual depreciation 100÷1 = 100 yearsTotal Life... RCN of subject is $125/SF x 1250 =$156,250

physical = 1% per year or 25%
functional to be cured= $25,000 or 25÷156 = 16%
156,250 x .59 = $92,000± as is value.. = eff. age = 40

take your land values out first and add back in...

forward looking statement...there are alternative solutions to the problem and the scenario above does not claim to be the only solution...

 

[Howard Klahr]

Remember you first evaluate physical curable before determining physical incurable. Therefore, you need to decide if the improvements can be economically repaired/renovated and what that would cost. Then you would estimate the remaining economic life assuming the repairs renovations were complete.

 

[Charles Knutson]

I never use effective age in reports -- the entire concept makes my head hurt, and it's much easier to list the actual age, with effective age differences between the subject and comps considered as condition adjustments.

In response to requests for effective age adjustments, I add comments something like this:

In reports where all the comparables are older homes:

"The actual age of the properties is listed in the comparable grid. The subject and all comparables are older homes, with varying degrees of updating and deferred maintenence. For the purpose of this report, all age related differences between the subject and comparables were made as condition adjustments."

In reports with a mix of older and newer properties:

"The actual age of the properties is listed in the comparable grid. With the exception of newer comparables, no age adjustments were made; all other age related differences between the subject and comparables were made as condition adjustments."

I've never been able to wrap my brain around the concept of effective age, and have found it easier to adjust for differences in market appeal on the condition line. When I took the 2-4 Unit Income Property class, the instructor (a long time member of the CO BOREA Board) made the case that effective age is a function of condition, and it's easier to determine and adjust for condition. He convinced me, and when I've included some variation of the comments cited above, I've never had a problem.

 

[3 Putt]

You cannot correctly determine the effective age without doing the cost approach. My guess is if the house is 24 years old the cost approach does not apply and therefore you cannot determine an effective age. Do not fall into the trap of thinking that because there is a blank on the form, it must be filled in. Try this for a comment...
"Effective age: In order to obtain a credible opinion of effective age, the cost approach to value would need to be completed to establish an accrued depreciation and an annual rate of loss. These factors are then applied to the replacement cost new to obtain a supported conclusion with regards to effective age. In that the cost approach was not performed, a supported effective age could not be ascertained."