Effective age

[Greenback]

...It’s not just market life expectancy but building life expectancy, right?

That's what I think, yes.

 

[Mztk1]

...It’s not just market life expectancy but building life expectancy, right?

I don't agree with that. I believe it is an estimation of how long the current improvements will continue to contribute to the value of the overall property should it not be updated or improved with anything else. That is "Total Economic Life" as opposed to "Total Physical Life". "Total Physical Life" would be the life expectancy of the building, which is better left to an engineer.

...adamant

The only justifiable thing I can think of is that he was speaking of Economic Life and you were speaking of Economic Age. It doesn't make sense with the 12 yrs vs 5 yrs but at least he would be right that if the total economic life of the building was 12 years it would depreciate slower than if it were 5 years.

 

[Michigan CG]

Effective age/remaining economic life displayed by the market.....using supposed depreciation from the comparable properties. One must have a lot of time on their hands to develop a credible result. Remaining life is physical, depreciation from the market includes all three forms. After extracting said total depreciation one must then allocate to the contribution of physical, functional and external.

The last five residential reports I have seen the depreciation on the form is all allocated to physical. This is wrong, the national economy is an external factor, the local economy (mine at least) is an external factor. Interest rates in 1982 were an external factor.

Then of course there is that pesky little thing you start off with called COST NEW, from which you deduct your depreciation estimates from. In 2003 if you asked a builder to build you a home (including the land) for $130/SF he would say it can't be done. Now they are doing it for $95/SF and still building a few homes. Which number is right? Oh, well that then gets you into the discussion of entrepreneurial incentive and profit.

COST to build a home in 2003 (per the builder) is $280,000; But my Marshall and Swift says it is now $190,000. Do I have a 32% external obsolescence from the 2003 number or 0% from the 2008 number?

I have never seen a good residential Cost Approach. I have seen good Commercial ones, but few and far between.

 

[Mztk1]

If you control for functional and external in your comp selection the depreciation you measure from the market will be physical, which can be used to measure total economic life as and effective age. Not easy and the data is never sufficient, in my opinion, for developing credible results. I do prefer to use Marshall & Swift data, though that is objectable to some as well.

The way I see it, entrepreneurial profits are usually wrapped up in land value. Although the cost to build a house with land has gone from $130/sf to $95/sf from 2003 to now, the cost to build has gone from to $70/sf to $85/sf in the M&S. That $85/sf includes contractor profits and expenses by as much as 10 to 20% so the contractors can take a hit and have to stiffen up costs to some degree, but there is a hard number they can't go below. Loss comes in the land value (entreprenuerial profit) and in economic depreciation, and it is often a difficult task to figure out how much came from where.

I rarely see a good cost approach in a residential report as well, and having to discuss whether the cost approach is reasonable in the field review form is a nightmare because you don't want to be a jerk about it, but you don't want to sign off on something terrible either. I chose the jerk option.

 

[Fred]

I don't agree with that. I believe it is an estimation of how long the current improvements will continue to contribute to the value of the overall property should it not be updated or improved with anything else.

You think that's "age?" That sounds like "life." I am also intrigued by the repeated use of the word "updated." When was the last time the Empire State Building was "updated?" Last time I saw it, it was still Art Deco. What do you think the effective age is on that?

 

[Greenback]

Effective age/remaining economic life displayed by the market.....using supposed depreciation from the comparable properties. One must have a lot of time on their hands to develop a credible result. Remaining life is physical, depreciation from the market includes all three forms. After extracting said total depreciation one must then allocate to the contribution of physical, functional and external.

I agree.


The last five residential reports I have seen the depreciation on the form is all allocated to physical. This is wrong, the national economy is an external factor, the local economy (mine at least) is an external factor. Interest rates in 1982 were an external factor.

I agree.

Then of course there is that pesky little thing you start off with called COST NEW, from which you deduct your depreciation estimates from. In 2003 if you asked a builder to build you a home (including the land) for $130/SF he would say it can't be done. Now they are doing it for $95/SF and still building a few homes. Which number is right? Oh, well that then gets you into the discussion of entrepreneurial incentive and profit.

I think inflation is external, too. Some will disagree. Land value is portrayed in the cost approach; speculation is up and down. But, inflation and deflation, in my eyes, is volatile. I think Mr. Klos has a good point about some costs being in the land, but that would be considered market data for land comparison since the monies are affixed to the market (like an improvement would be, except legally affixed on paper more so)

COST to build a home in 2003 (per the builder) is $280,000; But my Marshall and Swift says it is now $190,000. Do I have a 32% external obsolescence from the 2003 number or 0% from the 2008 number?

Possibility.

I have never seen a good residential Cost Approach. I have seen good Commercial ones, but few and far between.

It's difficult to feel comfortable while working up a cost approach when the sales comparison approach gives a more reliable indication of market value.

 

[Greenback]

...The only justifiable thing I can think of is that he was speaking of Economic Life and you were speaking of Economic Age. It doesn't make sense with the 12 yrs vs 5 yrs but at least he would be right that if the total economic life of the building was 12 years it would depreciate slower than if it were 5 years.

Unfortunately, we were both speaking of economic age/effective. No, economic life was a real world example; he was using 55 as an economic life.

I know the answer to it, but it will have to take another MAI to tell him otherwise/that he is wrong. A Trainee telling a MAI that they are wrong would be like starting World War Three (or, maybe any body else, for that matter, I suppose).

Since I know the answer to that, I'm going to drop what my Supervior/Sponsorship thinks from this thread. It's not important

 

[Mike Garrett RAA]

Unfortunately, we were both speaking of economic age/effective. No, economic life was a real world example; he was using 55 as an economic life.

I know the answer to it, but it will have to take another MAI to tell him otherwise/that he is wrong. A Trainee telling a MAI that they are wrong would be like starting World War Three (or, maybe any body else, for that matter, I suppose).

Since I know the answer to that, I'm going to drop what my Supervior/Sponsorship thinks from this thread. It's not important

And a very good way to the ..."ex-trainee"!

 

[Greenback]

And a very good way to the ..."ex-trainee"!

Possible...(It's an option).