Effective Age Quiz

[Austin]

I see effective age as a range number scale that transforms into a different concept at different stages of the economic life of the improvement. Reminds me of when I was in the Army in the Far East. The Orientals judge everybody on a scale of 10. If they like you are # 1 GI. If you do something to make them mad you are a hocking # 10 GI. In modern homes effective age is done the same way, like new is the reference point. # 1 means it is well maintained and younger than its years. # 10 means the owner is a pig or the house is older than its actual age. # 5 means, as you would expect for a house that age or actual ='s effective.
In the later years of the economic life of the improvement when the style and functional utility has been outdated the effective age takes on a new meaning and the reference point is not age new but average condition for a house that age not renovated or updated in relation to competitive properties. # 1 means in excellent condition for its age. # 10 means it is a pristine rat nest. If the house were in a subdivision of 50-year-old homes and in good condition, then the market determines effective age based on what is competitive with the subject property. If a competitive house age 35 is competitive with the 50-year-old modernized subject, then the effective age is 35. If the subject is a rat nest and competitive with homes age 65, then the effective age is 65. Kind of like the old adage: “People judge us by the company we keep.” That is why I like to work with kids. Lowers my effective age, in my mind anyway. Hanging around a bunch of grouchy USPAP guru types makes your effective age much higher than your actual age. "This way, no that way, well it depends, no that way is wrong because it is a 49% 51% split so the answer is false........ad nauseum."

 

[Mike Garrett RAA]

....shaking my head and almost laughing! :rofl:

lets see, effective age reflects quality of construction and the degree of maintenance received. The physical life expectancy can be increased by renovation and/or modernization. Do we know the life expectancy for this property? Not from the information provided. Do we know the degree of maintenance? Not from the information given. Do we know about renovation and/or modernization? Yes. Do we have enough data to estimate effective age? I don't think so.

Excuse me...but where does the market come into this? I guess you could say the bench mark is a typical residence that has been maintained with no significant improvements...but is that really market driven? I don't think so.

The purpose of establishing an effective age is so the appraiser can determine depreciation. Well maintained properties with updating and/or modernization will have a lower effective age... conversely, properties not maintained or updated will have a higher effective age. Most appraisers use the age-life method or sometimes referred to as straight-line method or economic age-life method.

Here comes the monkey wrench! Different locations have different effects on the life of a structure. Damp humid climates have shorter life expectancies. Areas with insect infestations have shorter life expectancies. Areas of warm dry heat have longer life expectancies. Some areas, by the nature of the market have homes built to a much higher standard of construction. Then there is New England, where some of those houses have been there for over 200 years defying every thing reasonable.

Without knowing your marketing area, there is no way I would venture a guess as to effective age for a 55 year old updated property. If it was in my market...my guess (and that is all it is) would be an effective age of 20 to 25 years and it's remaining economic life expectancy would be, say, 40 years.

Now, you tell me how much physical depreciation. We can assume no functional or economic depreciation.

 

[Farm Gal]

:rofl:
Hey using your example and morphing into real life:

The roof might be atypical material and U.G.L.Y... the tiles avocado green, the walls that deep, deep red, 'individualized' flooring color, near new but poorly installed vinyl windows that neither crank nor seal properly... and the outside a lovely new coat of purple.

{in case you were wondering this does in fact describe an actual house}

It's the MARKET perception of all these lolly, lolly 'improvements' that affects effective age despite their new or new looking condition.

Here it comes, are you ready???

IT DEPENDS!!!

:mrgreen: :twisted: :mrgreen:

 

[Darrell Hignite]

This is a question that has bothered appraisers since they began appraising. Let's see what HUD says, duh.....If it's new or less than one year, you need the actual age.

Otherwise, don't do the cost approach...The Cost approach is normally the second best way to appraise single family properties.

If you have an active market, then the best way is to use the market approach. The 2055 and 2065 don't even have the cost approach on their forms, and many appraisers don't put the cost approach into their workfiles because they considered it and did not find it applicable....

So when should we use the cost approach, in my opinion, when it's new or less than one year old.....of course our main form, the 1004 has this approach in it and we normally do this approach because it's there...Maybe we shouldn't. Maybe we should consider it and NOT FIND IT applicable.

Now come on and tell me I'm wrong.

 

[Farm Gal]

Darrel:

You are right.... a-a-a-and you are WRONG.

If'n "everyone does it" on 1004's in your area, one could be entirely correct and still have some 'splainin' to do. If for no other reason than the clients expectations.

In my area if a fast and dirty cost approach doesn't come pretty close to what I expect, then it is a redflag to start looking for where or why the property varies from the market approach

In most appraisals in my area "fast n dirty' cost comes close enough to 'scope' to suit me. (again: actions of ones peers among other reasons <_< )

"Fast n dirty" by the way means relying somewhat heavily on my "experience as an appraiser" in nailing the $ per square foot on heavily remodeled properties "Marshall & Swift modified by the appraiser knowledge of the local market". I am NOT doing a PFA, it is the remodeling quirks that toss 'real' numbercrunching out of the realm of reality and into that space in which only the incredibly anal or obtuse could possibly think they can really nail a number to the barn wall. If I am just at or barely under reasonable replacement 'cost new' it works fine most of the time... and the effective age guestimate takes care of the reest of the depreciation. And anyone that can tell me that they can perfectly extract land costs in a fully developed subdivision with no land sales in three miles any direction in the last 40 years better be wearing shoulder high waders as the stuff they are walkin' in is pretty deep .

Point is when it don't, add up, either direction, ya better dig a bit deeper :usa:

 

[Blue1]

Mike:

Life expectancy for this property is 60 years.
The degree of maintenance is good.
This is an area of warm dry heat.
(100 degrees on the day of inspection) But it's a DRY heat! :rofl: (Still plenty HOT!)

Lee Ann:

The newer vinyl flooring is a pattern that I would not wish on my worst enemy! But it is coved and well done.......The windows were done well and seal adequately..

Thanks all....I think I'm getting a handle on this effective age thing now....... :blink:

 

[Pamela Crowley (Florida)]

I'll go with Lee Ann on if the 'rough' cost approach shows 'something ain't right', then it's time to really start looking at it again. I kind of think of the cost approach as a good way to find a functional problem or the age adjustment for the sales comparison grid. I think the cost and sales comparison interact.

I try very hard to find comps that are very similar in age and only with the really old ones in an area of gentrification will I even consider an "Actual age/Effective age" as a possible sales comparison grid component. Could be from watching a previous supervisor of mine hike the value using this little game of effective age adjustments and to me, it throws up a large red flag.

 

[Bill_FL]

I do it the same way Roger described. Effective Age and Depreciation are a function of the market.

 

[Mike Garrett RAA]

I have said this before and I will say it again........

If you don't do a cost approach, how do you determine the lot value in a fully developed subdivision?

 

[Austin]

Mike:
You ain't going to like this, but your last post confirms that you are a closet regressionist. Your comment is a perfect example of regression methods. Regression is like working a puzzle, the pieces of the puzzle are the ratios etc., from the various approaches and the more data you have the more pieces to the puzzle you have available. If the pieces don’t fit together, then something must be wrong with the data selection. I did a FNMA appraisal the other day and did the cost approach with numbers out of my head using known site values and land to value ratios, then verified the results with Marshall & Swift by finding where it fell in the quality range which is verified with my historical charts. When the pieces fell into place, it put the sales comparison approach results into perspective. I always do the sales comparison approach first using my method so I can gauge the sequence of adjustments, determine if the sales are truely comparable, and verify when the data set is fully adjusted. Welcome to the regression club Mike. Your decoder ring is in the mail and you are listed as a card carrying closet member. When will others like Mike “Come out of the closet?”