Effective Age

[Frederick R. Ruffell]

Michael ther is no difference, call it condition or effective age or appearance or whatever.
I think what most appraisers have a problem with is the term "Effective age" as there is no defination or formula to arrive at a number, like bradellis said "Out texts say that effective age is subjective- based upon the appraiser's observation."
So rather than come up with a number, that one might be asked to show calculations for, I like to combine effective age (or age as it is on the forms) adjustments with condition adjustments and put it (the adjustment amount) in the condition field on the form. I put the Actual (chronological age) in the age field and put a big fat zero in the corresponding adjustment field ( because I am accounting for age differences under condition).

 

[Farm Gal]

Frederick:
My software permits the use of alphas in the numeric fields, as in 'see below' next to the age grid, or conversely in new construction homes where I might have a comp 1 year old (or under) 'see above next to condition!

Me thinks this is more explanitory than a -0- that requires more words in the addendum

 

[Frederick R. Ruffell]

Lee Ann,
Brilliant,
I often use alpha's for bed and bath count adjustments so I do not have to regurgitate it in the addendum. I will see if there is enough room at the smallest font size to fit something in the cell.

 

[Farm Gal]

Yup, that resizing IS the ticket!

Forgot to mention the need for the tweak :lol: 8)

 

[Bemis Pownall]

call me crazy but a 15 year old home with average maintenance levels should have a 10+/- effective age.

updating a 15 year old home should bring it to 7-8 years

call ne crazy but the only time effective=actual age is

1. a 1-2 year old, lived in home.

2. a POS trashed home, under say 60 years.

ie. a 100 year old home doesnt have an effective age of 100yrs. diminishing returns comes in around 25 years. homes stop aging(effectively) at a point in time. if they didnt loans would not be made, they would be dozed at around 40-60 years and no one would live in old turn of the century homes.

JUST MY OPINION

 

[Ross (CO)]

Backing up the thread here to Michael, --- How do you make a determination on the effective age of comparables ?...and where do you you speak to it. ? I guess if you elaborate within an addendum section that is all fair game. So, I ask, just what do you put in the grid field that specifically addresses "condition" (of comps) ? Do you put in an abbreviated entry for your conclusion of that comp's effective age ?...or do put in the Excellent/Good/Average/Fair (Boo!) /Poor (Yikes!) and then do some "splainin' in the Comments to Sales Comparison section ? I have an elaborate sysyem of abbreviating update features within the condition field and that often follows just an Ex, Gd, Av and occasioanlly a Fr. As for adjusting for condition on houses you have not been inside....it is based on what an MLS listing describes about the (new) features of the house or what the listing or selling agent have told you when you speak to them, because they have seen the inside and you are given the liberty to base a conclusion on what other profesionals say. When their listing offers nothing and it does say..."as is", "needs TLC", fixer-upper", with faults", "tenants to be out by July 31st", then they have actually told you quite a lot. Tell your reader where you got your info. I am curious about how that AI instructor phrased things in the class you took.

 

[Frederick R. Ruffell]

How about this, say you build two identical homes side by side and you have two families that were cloned from the same cells and did exactly the same things at exactly the same time live in them, but you made no repairs what so ever to house A and made all necessary repairs and remodels demanded by the market in order to keep it marketable to house B, what do you have? House A when it becomes un inhabitable or unacceptable to the market = Life span or economic life (lets say 50 years)? House B at the same point in time (50 years ) will sell for the same price as a 15 year old house with no maint or upkeep. Therefore the effective age of house is B is 15 years? Plausable ? I don't know, that is why I use condition as a guide.

 

[Jo Ann Meyer Stratton]

To me, the term effective age is a term to summarize everything that affects the home, and that is what is reported on the front page of the URAR. Then in the cost approach it starts getting broken down into the three types depreciation, with physical having two sub sets of long life and short life items. And then in the sales comparison approach it starts getting specific. The effective age gets broken up into four differant componants and a possible four different adjustments. There might be an adjustment for the design and appeal (a 1935 bungalow compared to a 1955 ranch for example). Quality of construction adjustment (tile roof versus a built up roof for example). Chronological age (1985 been maintained but becoming due for another maintenance within a year of two versus 1995 that will need maintenance in three to five years). Condition adjustment for the subject's new roof or need for a new roof as of the effective date, or new flooring installed last week, or kitchen updated withing the past few years, etc. I have very specific descriptions in each line which makes the adjustment or lack of adjustment self explanatory. Under condition instead of good or average or below aveage I type in roof or flooring or remodeled or renovated, etc and then in my addendum I go into detail for my subject and each comparable.

My philospophy is that reporting of effective age is a pyramid with it just the tip on the front of the URAR and then the reporting broadens in the two different approaches on the back of the URAR.

 

[Terrel L. Shields]

>>I do not understand the reasoning for adjustments for effective age when what the appraiser is really talking about is condition! <<

Condition, imho, means that obviously, but....

Effective age is a mathematical (howbeit inexact) expression of the combination of condition and FUNCTIONAL obsolescence. The URAR grid is, in effect, redundant. You need only to identify two of the three factors (condition, effective age, functional utility) to make an accurate adjustment. If you adjust for all three, you are likely double dipping adjustments.

Using M & S depreciation tables or Boeckh residual tables, effective age and remaining life can be estimated [just as you "estimate" condition]

Using Actual Age is ok but what about when the comps are 1920/remod 1955/remod 1972 (my mother's house) in good condition compared to 1950 / remod 1979 of the same size (nearest sale); and, 1965ish / garage enclosed in the 70s but well maintained (another nearby sale)?? I would rather call them all the same Effective age, not differentiate the obsolescences, and make no adjustment than to say 80 vs 50 vs 35 as actual ages.

I have no quarrel with either method as long as you do not mix (double dip) adjustments. I usually use effective ages and it is a primary criteria I choose in selecting comps....that is, EA and quality are the basis for my selection of comparables, thus neither will be adjusted.

As for >>call me crazy but a 15 year old home with average maintenance levels should have a 10+/- effective age<<

Can't say I agree with that. Classic appraisal taught me that AVERAGE maintenance should maintain a house at exactly its effective age [effective age (EA) = actual age (AA)]. Less than average maintenance results in a house of higher EA than AA. Better than average maintenance results in a house of lower EA than AA. Total life is dependent upon quality. Boeckh and M & S do calculate these numbers and they are in their books.

In determining market depreciation, example New $80,000 home less land value, say $10K),70,000 ÷ 1400 SF = $50 /SF. 5 years later, RCN is $60, land value is $12K. Inflation was 4% /yr. Sells for $90,000, less land value is $55.71/SF, depreciation is $4.29/60 = or 7.2% ÷ 5 = 1.4% 1/x = 69.93, say 70 years total life. Is that really that hard to do?

PS - My state (Arkansas) does not report Year Built. The assessor estimates effective age and rarely reports actual ages accurately. Often flipping the toliet lid only gives you a year of last remodel of bathroom, not a definitive year built. Only in the case of an owner who knows exactly how old the house is, can you know the Year Built. And it is the oldest houses that are going to be the problem adjusting right? houses built in the late 90s aren't going to be a problem in the first place.

 

[Frederick R. Ruffell]

>> Classic appraisal taught me that AVERAGE maintenance should maintain a house at exactly its effective age [effective age (EA) = actual age (AA)]. Less than average maintenance results in a house of higher EA than AA. Better than average maintenance results in a house of lower EA than AA. Total life is dependent upon quality. Boeckh and M & S do calculate these numbers and they are in their books.

Two problems with this reasoning, 1.) please quantify Average Maintenance. 2.) What about 2 identical houses where there are "average maintenance levels" But one house has the local Hells Angel's Chapter (no disrespect intended just pointing out different life styles :wink: ) renting it. Do these two houses have the same effective age, or the same condition, or the same depreciation.

And another thing a house doesnot depreciate in a strightline nor does it deteriorate in a stright line.

However Terrell, I have no better answer than yours to arrive at an effective age.