Effective Age - What Is The Methodology?

[netpresentvalue]

I need to support an effective age; not just state my opinion of it. For most of my career, my mentor stated their opinion of the effective age of a building without much discussion in support for it. I have a community SC built in 1981 but was "remodeled" in 2011 with a new facade and new roof; not much else was remodeled. What is the proper methodology in determining a defensible effective age? Look to the age of competing properties, i.e. properties with similar rent rates, which reflect market expectations for similar buildings?

Also, is this formula for an effective age adjustment logical and valid?

=(Mkt. Cond. Adj. sale price/sf) x ((eff. age of comp - eff. age of subject)/total economic life)

so, say, $21.68 x ((20 - 23)/40) = -$1.63 (rounded)

 

[Terrel L. Shields]

Extract from market
https://appraisersforum.com/forums/...-of-depreciation-in-the-cost-approach.191178/
https://appraisersforum.com/forums/threads/landsafe-effective-age-methods.166338/
Epley, Donald, The Concept and Market Extraction of Effective Age for Residential Properties, ... Appreciation of Individual Housing Units, 1990, v5(3): 301–18.

https://www.ipt.org/iptdocs/Files/Papers/2014AC/028Lennhoff.pdf

 

[Michael S]

http://www.appraisalinstitute.org/i...roach-a-journey-into-commercial-depreciation/

Excellent book. Really gave me a much better insight into the cost approach and especially the depreciation element which is usually the hardest part to determine (and defend).

 

[KenAZ]

So a 110 year old home that has not been updated?

I never like effective age. What happens at the end? A home has 1 year effective age and the next year it collapses?

If the effective age reflects economic life, what happens at the end? The home is worthless?

I do not like predicting the future. I have no idea how long the economic or physical life of a house is.

 

[Ahhhh Yeahhhh]

Marshall and Swift has a chart.

USE IT!!!!!!!!!!!!!!

 

[Terrel L. Shields]

Using M & S is a very weak method especially when you have to guess the actual age.

 

[Rob Frazier]

Estimating economic life and effective age are requied techniques for licensure. Some of us forgot how, some of us never learned, but this is one of the most valuable tools you can use to get to understand the property. All three forces of depreciation are included and considered, and its just not some chart in a book. I have seen residential properties in good condition reach the end of their economic life. It looks way too good to tear down, but the market is now demanding the mini mansion, so tear down the 1950's or 60's 1800 sf houser and build that 4500 sf craftsman style that is the optimum improvement developed in your highest and best use. Best current reference for techniques is in the AI The Appraisal of Real Estate, around page 600 or so. Buy the book, learn the techniques, be ready to understand your property and thus produce credible results. My demo for the SRA showed that the economic life of the crappy 1950 cape COD was 135 years. Why? rapidly increasing market, optimum improvement, lots and lots of data. Don't guess the results of your analysis - be surprised by it, think about it again and then understand what it is telling you. A lot more fun that just filling in forms. PS the Marshall and Swift book only used to go up to 60 years (I haven't seen one in a while). One of their analysts told me 40 years ago that it was because of printing limits, the real table went out closer to 100 years. They just assumed that appraisers knew how to calculate, and they were really not considering functional and economic like the appraiser on the scene would.

 

[netpresentvalue]

Thanks for the input everyone. Any further comments will be well received. -TEC

 

[Ahhhh Yeahhhh]

Estimating economic life and effective age are requied techniques for licensure. Some of us forgot how, some of us never learned, but this is one of the most valuable tools you can use to get to understand the property. All three forces of depreciation are included and considered, and its just not some chart in a book. I have seen residential properties in good condition reach the end of their economic life. It looks way too good to tear down, but the market is now demanding the mini mansion, so tear down the 1950's or 60's 1800 sf houser and build that 4500 sf craftsman style that is the optimum improvement developed in your highest and best use. Best current reference for techniques is in the AI The Appraisal of Real Estate, around page 600 or so. Buy the book, learn the techniques, be ready to understand your property and thus produce credible results. My demo for the SRA showed that the economic life of the crappy 1950 cape COD was 135 years. Why? rapidly increasing market, optimum improvement, lots and lots of data. Don't guess the results of your analysis - be surprised by it, think about it again and then understand what it is telling you. A lot more fun that just filling in forms. PS the Marshall and Swift book only used to go up to 60 years (I haven't seen one in a while). One of their analysts told me 40 years ago that it was because of printing limits, the real table went out closer to 100 years. They just assumed that appraisers knew how to calculate, and they were really not considering functional and economic like the appraiser on the scene would.

First off... Your example of the mini mansion being in demand but the old brick ranch isn't has absolutely ZERO to do with EFFECTIVE AGE. Maybe it has something to do with Remaining Economic Life, but NOTHING to do with EFFECTIVE AGE.

Why is it that everytime someone beats their chest about the AI or their SRA designation, they indicate they haven't a clue what the hell they are doing? I have been doing this for 15 years now. And for 15 years the M&S book has gone WAY beyond 60 years. If you havn't laid your eyes on the data in 15 years, maybe that is part of your problem.

I no longer subscribe to M&S since they were bought out by Corelogic. I don't support that organization. But the data developed by M&S is backed up by real research and real analysis and is regarded as one of the best sources of cost and depreciation data available.

 

[Michigan CG]

First off... Your example of the mini mansion being in demand but the old brick ranch isn't has absolutely ZERO to do with EFFECTIVE AGE. Maybe it has something to do with Remaining Economic Life, but NOTHING to do with EFFECTIVE AGE.

Why is it that everytime someone beats their chest about the AI or their SRA designation, they indicate they haven't a clue what the hell they are doing?

Not sure what post you read.....................try again.