Effective age

[Rufus]

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.

Good question.

Simple answer: There is no logical reason to equate 60 years life expectancy to the home.

I just finished an appraisal today for a home built in 1902. Using your method the thing should have ceased to exist 46 years ago. Since it was not FHA, I did not state a remaining economic life, but if I did it would be greater than 30 years. One is allowed to assume typical ongoing maintenance.

 

[Blue1]

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.

Let's say that would never happen.

 

[Mztk1]

Good question.

Simple answer: There is no logical reason to equate 60 years life expectancy to the home.

I just finished an appraisal today for a home built in 1902. Using your method the thing should have ceased to exist 46 years ago. Since it was not FHA, I did not state a remaining economic life, but if I did it would be greater than 30 years. One is allowed to assume typical ongoing maintenance.

If the house had not even one upgrade, it would have ceased to contribute a monetary value to the property 46 years ago. That's why it is called "Economic Life" and not "Physical Life". We estimate remaining "Economic Life". The 60 years is often used because it based on the M&S figures. A lot of appraisers believe if they are using the M&S for cost figures they should be consistent and use it for Total Economic Life as well.

 

[Fred]

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.

Glad to see you are not debating the cost approach.

 

[Mztk1]

Glad to see you are not debating the cost approach.

Yup. No harm in saying something we all can agree on.

 

[Don Clark]

Rufus reminds me of a student in a class I did for McKissock back in 1994 in Little Rock, Arkansas. The issue of effective age came up and I used the clock analogy. A student in the back of the room held up his hand. I asked what his question was..."Naw Sir" he said. I asked him what he meant. He said..."In Arkansas we always use 20 years". I was stunned to say the least. But he really meant it he was trained to use and he believed that the effective age when doing any appraisal for any house should be 20 years. Amazing!

My clients want to know the remaining economic life of any property that is appraised. The forms want to know the effective age. I realize that both are theoretical. But, they are the best we have as far as I know. And, like Oly, I have done many appraisals on homes over 100 years old. I did one a few years ago that was built circa 1820's, the original owners tombstone was next to the garage. An addition was built on one side in the early 1900's, and another addition was built in the 1950's. That required some innovative theorizing about effective age, and remaining economic life. There is a property in my own neighborhood that was built before the revolutionary war by Lord Pembroke, a royalist who escaped to Canada when the war started. It has been extensively restored, is a historic property, and is currently used by a friend of mine as a day care center.

A few years ago I visited a wood/log house inn North carolina built in 1he 1700's. It has a ;og foundation. If interested in viewing it go to

http://www.livinghistoryweekend.com/davenport.htm

Sorta put's into perspective just how long a wood house can last.

 

[Mike Garrett RAA]

Ok, guess I should chime in....

Remaining Economic Life is a theory, it's a guess on the part of the appraiser. The question really should be..."how long do you think the improvement will contribute to value?".

Effective age, on the other hand, can be proved...though seldom is. It is, in effect, how has remodeling or updating, affected the perceived age of the property? While Don uses a clock, I like to refer to those Hollywood ladies who are in their 50s or 60s and look like they are 30. Anyone look at Christy Brinkley this past week? She doesn't look her age. She probably doesn't feel her age. She looks great. That's effective age.

Can an effective age be greater than the actual age? Of course. I am sure most of you have been in a relatively new house that has been beat to hell. It has an effective age higher than it's actual age. A really good reference is Henry Harrison's guide books and his book Houses.

I am 66, almost 67. My effective age is, ahhhh? My wife is 62, her effective age is probably more like 40. Why? Good maintenance, I know...it's expensive!

Best wishes,

 

[Fred]

Mike,
I was thinking of you the other day when I took my son out for some sushi. Still chowing down those rolls?

There is nothing wrong about what you and Don are saying, but I keep wondering - what's the point?
First, while it is easy to understand the Brinkley looks younger than she is - it loses something in the transation. That house is 200, but it could pass for 160.
Second, the only possible reason to use something like EA is that within the appraisal there are sales of equal age, in unequal condition, or sales of unequal age that are in equal condition. Otherwise, you can just rank sales by year built (er uh, actual age).
Third, reports that include subject's EA usually do not: 1) include the comps EA, and 2) do not use EA in an adjustment calculation.

Now, I don't mean to go off on rant here - but -sometimes I think what is missing is an appraisal book that include the principles of common sense - for example - that, given two explanations, the simpler one is usually better, etc. So rather than try to breathe life into every thing one finds in the AI text, the protocol should be first to ask do I really need this thing in the appraisal. Is it "necessary to produce credible results?"

I don't use EA and no one has ever asked me for it. So maybe you "old" guys who are effectively still young who do the teaching could incorporate into your chestnuts a little practical common sense (in this case Occam's Razor). Maybe you could point out that EA isn't necessary and leads to long, unresolved debates.

 

[Mike Garrett RAA]

Sushi at least once a week!

Your points are well taken. I use effective age because it is a required field on the Fannie Mae 1004. Granted, I usually don't know the effective age of the comparable; however, I can and do use the effective age of the subject as a basis of comparison. It also allows me to keep certain adjustments below maximum preferred by the GSE's in that I can split those adjustments between age and condition. It's a guess and it's an opinion.

 

[Fred]

Sushi at least once a week!

Your points are well taken. I use effective age because it is a required field on the Fannie Mae 1004.

which can be filled with N/A or B/S