Effective Age

[Caterina Platt]

As taught by my mentor and several instructors, effective age is a judgement call. On homes less than 10 years old with average maintenance, EA and AA are often equal. However when appraising an old adobe in my market say 60-80 years old, honestly if the effective age were 60-80, I'd be appraising outdoor plumbing! In these cases, I do as George, Act Est. 80/Eff 40+. When stating an effective age of 40, I'm not stating the roof appears to be 40 years old. Usually it's been resurfaced recently, but it's also considered necessary and average maintenance for a dwelling over 15 years or so.

I was taught to give consideration to all items of refurbishing and remodeling over the life of the dwelling. Stand somewhere near the kitchen and living room area and look around. When's the last period of time that styling, number of baths (one?), and kitchen would have been considered modern and acceptable? How long has it been since a single car garage in this value range was acceptable? Are we still using single pane casement windows? Dated items of decor, cabinets, countertops, bath fixtures, floor plan and flow all play a big part in this.

A recently remodeled home with many closed off areas and minimal closets, in my mind still lives heavily in the 60's and 70's when that type of floor plan was acceptable as opposed to todays open flowing styles.

Best example I can recall of age versus condition adjustment as of recent:

Attractive home in the $300K range sold. (high dollar location with excellent horse facilities and pasture lands). Very well maintained, wood siding recently stained and treated, finely manicured landscaping, etc. The floor plan had all the bedrooms in one area with a privacy issue for the master bedroom. Master has smallish 3/4 bath, minimal closet space for all bedrooms, dark paneling thru out, galley style kitchen with dark dated kitchen cabs, tile, counter tops. Overall, very 70's decor and floor plan. Condition adjustment? No. Effective age adjustment versus the recently refurbished and remodeled comparable sale with a master suite and large bath, ample closet space and gourmet kitchen, you bet. In this value range, a buyer demands modern styling and modern functional rooms and storage space. If it's not there, they are likely to build their own design and bypass these existing dwellings.

I can't say that I follow a hard and fast rule with all cases. In cases of dwellings less than 5 years old, I rarely use actual/effective in the grid. For me, it depends on the situation. There are many times when age and condition can and are reflected as one aggregate adjustment. I just explain, explain, explain and use lots of specifics as to why and how I adjusted.

 

[Charlotte Dixon]

I can't say that I follow a hard and fast rule with all cases.

That's describes what we do perfectly!

 

[Jo Ann Meyer Stratton]

I'll repeat what I mentioned a couple of days ago. The effective age on the front of the URAR is a composite of all the depreciation that is broken down into various categories on the back of the form. One type of breakdown is in the cost approach. Another type of breakdown is in the sales comparison approach.

The short life items are any recent remodeling, updating, renovation, etc would be condition adjustments---not a dart board approach by using effective age. The age is the actual age which is the long life items or bone structure of the home. So if you are comparing a home built in 1920 to a home built to a home built in 1925, there would not be an adjustment. If a comparable home has been physically update/remodeled/renovated at any time during its lifetime, then there is a condition adjustment as compared to the subject's similar or lack of update/remodeling/renovation (that is some of you are calling effective age) . If you are in a limited market like I am you might have to compare the 1920 home to a 1960 home, then I would probably make an actual age adjustment because of today's market adjustment to the different styles/floor plans, etc that were popular at time of original construction. Then under design/appeal could be an adjustment for the actual aesthetics of that particular design comparabled to the subject's aesthic appeal. A plain bungalow of 1920 compared to a plain 1960 ranch might not have any appeal adjustment but a Craftsman 1920 bungalow with all the wood detail and design features might have a high market appeal compared to the plain 1960 ranch. Quality adjustment might be a tile roof versus a wood shake roof in a high fire danger zone. Then you are ready to finally address the condition. The 1920 Craftsman bungalow might have been rewire, replumbed, woodwork restored, repairs and renovation completed so that appears as brand new as it did in 1920. The 1960 ranch still have the original wiring, plumbing, roof installed over 10 years ago, flooring and painting maybe over 5 years ago---so there would be a adjustment for inferior condition compared to the 1920 Crafstman. All of those factors do change the effective age but in the sales compararison approach itemized adjustments are being made, not one singlel lump sum adjustment for only effective age. If both effective age and other adjustments are made, then "double dipping" is occurring.

Effective age equals a lump sum adjusmtnet.

Design, appeal, quality, actual age, condition equal itemized adjustments that should be very similar to the total lump sum effective age.

Don't double dip!

 

[Farm Gal]

If both effective age and other adjustments are made, then "double dipping" is occurring.

Don't double dip!

Jo Ann and others, I beleive sometimes an appraiser CAN make adjustments on more than one line as LONG AS THEY SAY what they are doing and WHY! and as you say, don't double dip.

Your example is nearly perfect in that there are many issues in comparing the two homes, but if they are the only sales you have to work with (welcome to rural America) and so it goes, you must use those sales..

Design, appeal, quality, actual age, condition equal itemized adjustments that should be very similar to the total lump sum effective age.

I definitely agree here in that if all the items are not addressed the appraiser did not do his/her job.

Guess my point is that I don't much care how you do it, the response set tot his thread indicates that there are many opinions of the 'right way'

As long as you climb the mountain and don't hurt anyone I don't care if you use a rope or free climb, but I'd kind of like a plan filed before you start.

 

[Caterina Platt]

Well said Lee Ann!! :lol:

Agreed, no doubling up on adjustments up or down! I too am in a limited, somewhat mixed up market. Just got finished with one of those old adobes on irrigated acreage and once again had to re explain on an additional addendum (since they didn't read the first one I'd sent :roll: ) just why the comps aren't text book, within all Fannie's guidelines examples.

As with pure mathematics (which is part of our jobs), there is often more than one correct way to arrive at the same conclusion. I can see good arguments for why new wiring, plumbing, etc. could be considered 'condition' or effective age items. Just as long as you don't call it both. Design and appeal vs. effective age in the case of the floor plans, also could be one or the other. JUST DON'T DO BOTH! I tend to stay on the effective age side more often as it is easier for me to quantify and support than a design and appeal adjustment with my limited market data.

 

[Frederick R. Ruffell]

Jo ann,
Your approach makes the most sense and is similar to my approach with some minor varation for my market(s). One point I would like to make is this, The sales grid does not sak for effective age it asks for age, so why would anyone use effective age as an adjustment basis given it's complex nature. Jo ann's approach is the way to go, do the sales grid a la Jo ann and then go back to the first page of the URAR and put in your effective age as you now have a much better idea as to the subject's effective age.

 

[bradellis]

Jo Ann,

Precisely!

Brad Ellis, IFA, RAA

 

[Steve Owen]

I liked Judy Whitehead's comments the best, but I don’t think anyone hit the nail on the head. I tend to think of it this way: there are two kinds of physical depreciation incurable and curable. Incurable depreciation tends to go together with age and curable depreciation tends to go together with condition. If I make an adjustment for poor condition of the subject on the condition line in the sales grid I almost always add additional physical depreciation over and above the amount of physical depreciation for the age of the subject in the cost approach.

Now for the comment that will stir up the hornets nest. I think that those of you who do not ever make an adjustment for effective age are throwing away a useful tool. It's not about making value, it's about making appropriate judgements concerning what is there. In cookie cutter assignments they may indeed all be the same effective age. Sometimes you can find comps that are all about the same effective age, and in those cases they are usually in the same sub-division and all about the same actual age. However, in the world I live in (the real world) this rarely happens; more and more of the assignments I get seem to be unusual and it is also a little unusual for both the subject and all of the comparables to have the same effective age. (One banker actually told me ‘you get all the hard ones.’) I make effective age adjustments if they are called for and I have never had any negative review or feedback about it.

Appraisers are paid to think and reason, not just to do math. Geeeeez! No wonder the AVM's are taking over! Of course, some of you may be working in nearly perfect markets with nearly perfect comps. In those cases, maybe there isn’t any need for appraisers - assuming the county records include good data on sales an AVM (straight math) should be able to do just about as good a job.

 

[Farm Gal]

Steve:

I quite agree! Effective age IS a viable tool when the market justifies it's use!

Effective age vs. condition is an interwoven but occasionally distinct set of criteria, matters not a great deal HOW we fill in the blanks, just that we do our work and have the back-up to prove it

As indicated, I tend more often to make my adjustments in the condition pew, because this is what I beleive I am seeing reflected in my market MOST of the time!

This was where I took issue with ?brad? (sorry can't remember who), that there is never :!: :evil: justification for effective age adjustments, and to those who say that adjusting for both is always erronious I also say NOT :twisted: ! However being very very very careful not to double dip is required 8O ...

Some times the appraiser has to spend the extra time and effort not only to do the work but to have the workfile to back it up!!! :roll:

I think many of us work in markets which differ greatly from other's markets, and accross the board statements can run us into trouble in a hurry Such discussions as this one tend to leave me a bit confused, but still satisfied that I am doing something right! :wink:

---
I am still trying to figure out some of the WHY's and WHEREFORES of my primary market, and I have been living and working here for over 13 years! Trying to explain some aspects still baffles me and it isn't for lack of trying. I can see certain patterns, but figuring out what bug in the buyers brains causes them to spend more for housedesign X on THIS side of Whosit Ave than they will for the same HouseX, same lot-age-condition-schooland ??? on THAT side of Whosit is still on occasion a mystery!!! So it isn't always my job to explain, but I'd best be able to observe and report 8) .

 

[Frederick R. Ruffell]

Lee Ann,
Your last post brings up a point I would like to make. If we agree as posted by Bradellis ....
"from Henry Harrison's book:

"The Condition line includes the appraiser's opinion of the subject property's condition (whether good, average, fair or poor), comparison ratings (superior, equal or inferior) for the comparables and adjustments made as indicated by the market.

The Condition adjustment should be limited to items that have not already been included in the Age adjustment. It would be a mistake to increase the effective age of a residence because of its condition and also make adjustment here for the same condition factors.....

His suggestion is to include curable items of depreciation in the condition grid and incurable items in the age grid."

Note: curable items are short lived and incurable items are long lived. ...."

then effective age becomes less valid a figure because I for one am not qualified to determine the remaining life of such items ("incurable items are long lived) like the furnace, plenum, hot water systems, plumbing and waste systems, AC compressors etc.. My appraisals are based on the assumption that the HVAC and mechancial systems are all in working condition. Do you all agree?