Effective age

[Don Clark]

Steve,

I hear you. The only reason that any appraiser, and usually residential types like myself use effective age and remaining economic life, is that it is a condition and a requirement of the form reports that we use.

And, as for injecting common sense into the discussion, here is what I tell my students.

"Of all the houses built in the United states of America, from colonial times until now, 90% are still standing. Think about that the next time you attempt to develop an effective age, and an estimate of remaining economic life".

I also go on to tell them that most houses in this country were built after 1900 until today's date.

 

[Fred]

Steve,

I hear you. The only reason that any appraiser, and usually residential types like myself use effective age and remaining economic life, is that it is a condition and a requirement of the form reports that we use.

I think the real difference is the perception that it is a "requirement" (as that word is used in USPAP).

 

[CANative]

Effective age was invented to make estimating depreciation so simple that almost anyone could do it and some could even understand it. It allowed for the 5-minute cost approach and because effective age is an opinion that no one can really prove or disprove, it's indispensible for "fine tuning" both the sales and cost approaches when needed.:new_llying:

 

[ZZGAMAZZ]

To base physical depreciation, effective age, and remaining economic life upon a factor other than the default 60 years as per M&S would, I presume, require an analysis to exist in the workfile.

 

[Fred]

Effective age was invented to make estimating depreciation so simple that almost anyone could do it and some could even understand it. It allowed for the 5-minute cost approach and because effective age is an opinion that no one can really prove or disprove, it's indispensible for "fine tuning" both the sales and cost approaches when needed.:new_llying:

Interesting idea. Mine was that EA was "invented" to make the cost approach "work." If you look at the first text that tries to breath life into age-life, it uses actual age. Ten years later, another book talks about effective age. And there are no significant book in between that I know of.

I believe the problem was that actual age-life would systematically understate value. The lower the total life, like 60 (which is low), the more value is understated. There are published studies tracking the costs and price of hundreds or thousands of sales that one can use to confirm this. Studies over decades show that 20 and 30-year-old houses consistently sell for more than the kind of value one would get using 20/60 or 30/60 in an age life "method." (Actually, it's more or a rote and simplistic first guess than a method. But what do you expect from cost approach theory other than rote and simplistic).

There are only two choices. Find an excuse to increase the demoninator, or find an excuse to lower the numerator. Hence: effective age.

 

[The Bob]

I have a question. Suppose you have two houses that are identical in age, design, quality and conditon. One is in an area undergoing gentrification. The other is in a neighborhood of similar houses, but is not undergoing any significan renovation/gentrification.

Since they are identical in physical characteristics, are the effective ages the same?

 

[Fred]

To base physical depreciation, effective age, and remaining economic life upon a factor other than the default 60 years as per M&S would, I presume, require an analysis to exist in the workfile.

If citing MS's "studies" is sufficient for a workfile, then why wouldn't citing other studies that produced results like 75 aor 88 be just as sufficient.

 

[BRCJR]

If citing MS's "studies" is sufficient for a workfile, then why wouldn't citing other studies that produced results like 75 aor 88 be just as sufficient.

M&S becomes part of the "workfile", if your sources of information are deemed credible, you have the sources retained in your "workfile", I would say you have created a sufficient age/life method that is supported.

 

[Fred]

M&S becomes part of the "workfile", if your sources of information are deemed credible, you have the sources retained in your "workfile", I would say you have created a sufficient age/life method that is supported.

That means the answer to ZZ's question is that he is not stuck with MS's estimates of building life.

 

[Greenback]

...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.

Do you think Inflation is curable?

Or, maybe, life stages of a subdivision or a competing subdivision, on demand; or does it just evolve at market behavior's will?

Is uniqueness curable?