Effective age

[Mztk1]

Well, land is fixed. Inflation would have to come to the location. What would inflate a piece of Real Estate? Over speculation, known defects that aren't disclosed, the status of interest rates at times, lack of insight and too much perception, no updates etc..but clings to a location with drifts of high prices over a season or two; these factors maybe? There is an inflation rate tied to indexes, etc.., and sometimes location plays a big part. What can make a piece of real estate inflate and, inflate pass an average rate. Inflation is needed, but too much can be serious. I don't think too much inflation is curable and it affects an effective age because too much inflation affects human behavior. Inflation is affecting all of our behavior in the country as of right now?

Land is fixed but demand isn't. In the early part of our nation's history all the land of the Ohio wilderness was basically free and gobbled up in large parts by a young George Washington, who lost his shirt when it wasn't in demand. But today that same land, now mostly settled and built up, is worth more because of the relative balance between supply and demand changes. Even adjusted for inflation the value of the land is more now than it was then.

Whether too much inflation is curable or not is moot. For instance, we can all say there was too much inflation after WWI in Germany, that problem was solved, but was it cured? Curable is determined whether the cost to repair is less than the return. If the cost is more it is not curable, if it is less it is curable. Can we put a price tag on the hardships and trouble caused by inflation? Or the loss of life in the ravages of war?

Do you think a condition adjustment is easier left to minor deferred, physical, curable items and Effective age could represent incurable physical items, external influences, market conditions that are not part of any elements of comparison, incurable functional depreciation and maybe include small affects of all elements/units of comparisons, and much more?

Effective age, by definition, is to encompass all forms of depreciation. But in residential appraising we generally limit it to physical depreciation whether curable or incurable making separate functional or economic depreciation categories and adjustments. Do you have the Appraisal Institute's text book? I believe the 13th edition just came out. This stuff is in there.

When would uniqueness be curable?

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Uniqueness is not a form of depreciation but can be a cause in some situations.

Donald Trump just sold his 60,000sf beach front home here in Florida for $100,000,000. That house is very unique but does not suffer for it.

A theater in Pittsburgh my brother renovated was bought for very little, fully renovated at a fairly low cost, and sold at a very high dollar relative to the price paid and cost of work. Had it not been a unique historic structure I doubt the demand would have been as high once it was done. So, the unique factor helped and is the likely reason why the physical depreciation of the theater was curable.

I have a four bedroom house that has one bath in the middle of rural Florida. It is unique to its market and a detriment. One bath houses with four bedrooms sell $20K to $25K lower than four bedroom houses of similar size in this market that have two and three baths. The addition of a new bath, per the owner who had three contract estimates to show me, was $10,000. So his unique factor of having only 1 bedroom in a four bedroom house could be cured because adding $10K will return $20K. That is a form of curable functional depreciation. Had his house already had 2 baths and he added the third for $10,000, since the return on the third was only $5,000, it would not have been curable. This is a case where the unique bath count of one was the likely reason the depreciation was curable.

 

[ZZGAMAZZ]

I meant to imply in Post 34 that if remaining life expectancy--derived from total economic age minus effective age--was market extracted rather than based upon a published source, an analysis would be needed to support the calculations...and the significance relative to the intended use of the results doesn't warrant the additional labor required.

 

[Mztk1]

I meant to imply in Post 34 that if remaining life expectancy--derived from total economic age minus effective age--was market extracted rather than based upon a published source, an analysis would be needed to support the calculations...and the significance relative to the intended use of the results doesn't warrant the additional labor required.

I agree 100%.

 

[Mr Rex]

Benji, how much did the US pay for the Louisiana Territory? How much is the typical home-site worth now. Can you say inflation?

 

[Mztk1]

The Louisiana Purchase was in today's dollars for $331,787,971.

I don't think that could even buy Arkansas today. Maybe Oklahoma.

 

[Fred]

if remaining life expectancy--derived from total economic age minus effective age--was market extracted

Market extracted? I take it total economic age is total economic life. You are going to extract TEL from the market?

 

[Mztk1]

Market extracted? I take it total economic age is total economic life. You are going to extract TEL from the market?

Yup, it works in theory.

Take that 10,000 depreciation over 5 years on the building that costs $60,000 to build we had talked about before in one of the examples I used above (where you said can't you just say the house is worth $100,000). Using induction (and we all know the reliability of that logic) you can extract a total economic life for the market of 30 years.

But you're a math guy, you know this already, you just object to it for other reasons - namely it is bunk.

 

[Fred]

Effective age, by definition, is to encompass all forms of depreciation. But in residential appraising we generally limit it to physical depreciation whether curable or incurable making separate functional or economic depreciation categories and adjustments.

Usually, I wait ill EA threads percolate for a while before brining this up, but you brought it up first.

As Jim is indicating, the term effective age is literally ambiguous, ie has more than one defintiion. So, it's always fun to watch all these statements fly back and forth, reading between the lines, trying to figure out which defintion of the term someone is referring to.

 

[Fred]

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

I missed this before. No problem saving the debate for a future time should you ever find yourself no longer senza coglioni.

 

[Fred]

Yup, it works in theory.

Take that 10,000 depreciation over 5 years on the building that costs $60,000 to build we had talked about before in one of the examples I used above (where you said can't you just say the house is worth $100,000). Using induction (and we all know the reliability of that logic) you can extract a total economic life for the market of 30 years.

But you're a math guy, you know this already, you just object to it for other reasons - namely it is bunk.

Like other math guys, I am also an epistemology guy. I also know bogus induction when I see it (and weak and strong induction).