Effective age

[Greenback]

...I do my best to extract my effective age from the market.

There is no way to extract an effective age by comparison or through paired sale analysis, with enough data?

 

[ZZGAMAZZ]

Newer improvements, e.g, year built 1995, with no apparent routine preventive maintenance and relatively significant deferred maintenance would result in an effective age that is higher than the actual age.

Also, I seem to recall that FHA requires an opinion of site value as well as remaining economic life. How do appraisers determine these figures and where in the (Form) report are the results presented if the CA isn't developed?

 

[Mztk1]

There is no way to extract an effective age by comparison or through paired sale analysis, with enough data?

I suppose there might be and I'd never step into a black swan argument, but I don't think so.

Lets say you have a new house as a comp and two others that are 5 years old, and your subject is 5, all are identical and the new sold for $110,000 while the five year olds sold for $100,000. The depreciation is 9% of the total value, which arguably is an effective age of 6 if the total economic life is 65. But that would be applying depreciation rates to the land and the "as is" value of the site improvements (both are included in the overall sale prices). Depreciation, or effective age, is based on the improvements only. So that $10,000 loss is the result of deprecition to the building, and in order to know what that % is, and in order to determine the effective age, you would have to know what the cost to build the building is.

So, if the land value is $32,000 and the site improvements as is are $8,000 the deprecaition is $10,000 of $60,000 cost to build or 16.6%, which is an effective age of about 11 or so.

Of course this example excludes economic and functional forms of depreciation, which are other variables to consider.

 

[Greenback]

I suppose there might be and I'd never step into a black swan argument, but I don't think so.

Lets say you have a new house as a comp and two others that are 5 years old, and your subject is 5, all are identical and the new sold for $110,000 while the five year olds sold for $100,000. The depreciation is 9% of the total value, which arguably is an effective age of 6 if the total economic life is 65. But that would be applying depreciation rates to the land and the "as is" value of the site improvements (both are included in the overall sale prices). Depreciation, or effective age, is based on the improvements only. So that $10,000 loss is the result of deprecition to the building, and in order to know what that % is, and in order to determine the effective age, you would have to know what the cost to build the building is.

So, if the land value is $32,000 and the site improvements as is are $8,000 the deprecaition is $10,000 of $60,000 cost to build or 16.6%, which is an effective age of about 11 or so.

Of course this example excludes economic and functional forms of depreciation, which are other variables to consider.

I have some questions, but I will wait till tomorrow. I have to lock up and drive home before it gets too dark and before it gets too late to do some home work.

Appreciate your reply, Mr. Klos.

 

[Farm Gal]

I'd prefer to adjust on the condition line - because I was not privy to personal inspection of comparable sales... and because the ground level exterior and surface only interior view of my subject doesn't always make me real sure of what is hidden...

So Condition of Subject (observable) and Condition of sales (as reported by others and viewed (or warped) through their personal point of view is about as far as I am generally willing to go!

I have appraised many homes with effective ages greater than actual - the rental property rode rough and put away wet (literally) or the REO with substantial damages and deferred maintenance can easily be 'older and rougher' than a similar age home well maintained! It's an opinion...

 

[Rufus]

I do not use effective age, as effective age is just another word for:

<...snip [removed some verbage and several CR,LFs for brevity] snip...>

CONDITION!!!

I was originally trained to state that effective age was half of the actual age, but no less than 30 years. :Eyecrazy:

Many years of 'on my own' experience and several CE classes later, I agree with Lawrence. The actual age and effective age are identical. Updates and renovations are condition.

 

[Fred]

So, if the land value is $32,000 and the site improvements as is are $8,000 the deprecaition is $10,000 of $60,000 cost to build or 16.6%, which is an effective age of about 11 or so.

So much for the theory that you must see the improvements before coming up with an effective age.

Lets say you have a new house as a comp and two others that are 5 years old, and your subject is 5, all are identical and the new sold for $110,000 while the five year olds sold for $100,000.

Doesn't that mean subject is worth $100,000 too? So why not stop right there?

 

[ZZGAMAZZ]

Rufus: If yor equate actual age with effective age, are your mortgage reports accepted with remaining economic lives of less than 30 years, which would be the case for any improvements more than 30 years old and with an original total life expectancy of 60 years.

 

[JSmith43]

Doesn't that mean subject is worth $100,000 too? So why not stop right there?

I suppose someone might say that the three comps might be bogus in some way, such as undisclosed (undiscovered) non-arms length transactions buy luck of the draw.

Then they would suggest that rickety as it is, a calculation of reproduction cost and extraction of depreciation (gulp) from the greater market is a rough test that might detect the error of the three bogus comps.

Sounds pretty bogus to me. Maybe someone that has there heart in it could explain it better

 

[Mztk1]

So much for the theory that you must see the improvements before coming up with an effective age.

Doesn't that mean subject is worth $100,000 too? So why not stop right there?

I am not debating the use of the cost approach, nor do I wish to. You have your ways I have mine. The question was simply whether the cost approach was needed to estimate an effective age.

Personally, I don't make effective age adjustments, I make condition adjustments and sometimes, if the market suggests conformity in depreciation rates or if there is measurable incurable types of depreciation, I'll make actual age adjustments.

I agree with you that effective age seems to have gotten stuck in the text book and no one wants to take it out. It is wishy-washy. But on the other hand, I like the cost approach as a tool (to check for reasonableness at best) even though it is wishy washy and not good at estimating market value by itself. To me, the cost approach is just the sales comparison approach to value from a different perspective, and in looking at things from a different angle it can sometimes give you insights you wouldn't have seen before.