Effectve Age

[RCA]

Effective Age is one of those bogus things that have been around in appraisal forever, it is usually next to meaningless in neighborhoods with homes mostly older than 10-20 years.

How accurate is effective age in the SF Bay Area? I would say, based on appraisals I have seen, 5-8 years, + or -. If you are adjusting for condition, you DO NOT need effective age. Of course, you need it for the Cost Approach - which is usually a bogus valuation method for residential.

What would make 10 times more sense and which would surely be the case if we didn't have so many idiots around, would be to simply score Condition by the percentage of homes in the market area in worse condition. That would be useful -- just choose a market area everyone can agree on, e.g. MLS area or city. A score of 2.0 would mean 20% of the homes in the subject market area (say an MLS area) are in worse condition. Although appraisers don't know the condition of every property in an area, they probably have a good sense of what the range of conditions are - and could probably do an equally good job of scoring particular homes based on inspection or by looking at decent MLS photos of comps (with comments).

 

[sputnam]

Effective age isn't a calculation. It's an opinion. Effective age is defined as the apparent age. For a lay person, that's 'How old does it look?' For an appraiser, it's... or at least should be... 'How old does it look considering it's condition?' together with what the market has to say about depeciation of improvements. It's extractable.

 

[TerryRohrer]

Effective age isn't a calculation. It's an opinion. Effective age is defined as the apparent age. For a lay person, that's 'How old does it look?' For an appraiser, it's... or at lease should be... 'How old does it look considering it's condition?' together with what the market has to say about depeciation of improvements. It's extractable.

Funny that your first and last statements are mutually exclusive!

 

[Gobears81]

Dell has an updated spreadsheet that is much easier to use; unfortunately, the forum does not allow spreadsheets to be uploaded.

View attachment 72561

That is a good spreadsheet, but why would the foundation/ floor structure on a 48-year-old property have an effective age of 18-years?

 

[alebrewer]

Personally, I try to pick 3 sales that are similar effective age and from those estimate a comparable effective observed age.
But you can do what Ter above suggests.

George Dell's method is similar to this one

Effective Age Calculator — Choice Valuation, PLLC

www.choicevaluation.com

or on dropbox

Dropbox

www.dropbox.com

I modified the premise of Dells with my own assessment based upon Nat'l Building Cost page 11 - Quality classification. There are plenty of different ways to skin this cat.

In George's model, is he assuming TEL/physical life?

 

[alebrewer]

How accurate is effective age in the SF Bay Area? I would say, based on appraisals I have seen, 5-8 years, + or -. If you are adjusting for condition, you DO NOT need effective age. Of course, you need it for the Cost Approach - which is usually a bogus valuation method for residential.

Finally something Bert and I can agree on.

 

[Terrel L. Shields]

How accurate is effective age in the SF Bay Area?

I bet it is quite accurate. What isn't accurate is your land value. The improvements are a small percent of the value. I argue that you are doing a land appraisal with minor improvements - no different that a 400 acre ranch with a ranch house and a barn. The land is the bulk of value.

How accurate is effective age in the SF Bay Area? I would say, based on appraisals I have seen, 5-8 years, + or -. If you are adjusting for condition, you DO NOT need effective age. Of course, you need it for the Cost Approach - which is usually a bogus valuation method for residential.

What is not bogus is the inability of the typical urban appraiser to even understand the CA, to apply it correctly, AND to be competent enough to add sufficiently for soft costs, EP, and permits. I mean the SF restroom for $1.7 million was $1.2 million in permits, zoning approvals (or kickbacks), plans, inspections (or kickbacks again), architects, and approvals. If you don't include those then you can whine about the CA being bogus, but the CA is no substitute for incompetence. And governments are incompetent who develop unwarranted and useless obstacles to construction.

Effective age isn't a calculation.

Tell Dr. Epley that. It is a rather easy calculation in fact. Nothing in USPAP requires you do more than accrued depreciation. Since building costs can be estimated, land values can be estimated, the difference can be estimated. You can calculate the total life by the rate of depreciation. (inverse thereof) No one has accused any appraisal math of being rigorous proofs. We are not solving Fourier's Transform.

 

[Mejappz]

In George's model, is he assuming TEL/physical life?

It comes from the Cost book either NBC or Marshall & Swift.

 

[George Hatch]

Effective age is only useful in a depreciation analysis, and even then "physical condition" is only part of the story when it comes to looking at the contributory value of these improvements to the whole.

The M&S Depreciation tables don't even run off the formula that we teach in the Appraisal 101 courses:

Economic Life​

- Effective Age (this being the factor the appraiser is eyeballing)​

----------------​

Remaining Economic Life​

The M&S depreciation tables actually provide for consideration of the other factors economic besides the physical condition:

Economic Life​

- Remaining Economic Life (this being the factor the appraiser is eyeballing)​

----------------​

Effective Age​

​

Which if you think about it actually makes a lot more sense insofar as looking at the contributory value of existing improvements to any particular property.

The contributory value of a 100yr old bungalow of 900sf on a 2500sf lot in an urban neighborhood of similar age/condition homes can be a lot different than it's contributory value to a 2500sf lot in neighborhood where they're redeveloping into new 2000sf homes. The quality is the same, the condition is the same, but the REL is way different due to the economic conditions. In the case of the SFR in the inner city the REL may be indefinite, depending on the prevailing trends in the area; whereas in the "redeveloping" area the REL may already be less than 5yrs at the current rate of redevelopment trends.

What the lender wants to know is if its okay to offer a 30yr mortgage at SFR rates/terms on this property. Or are they inadvertently making a land loan?

 

[sputnam]

Funny that your first and last statements are mutually exclusive!

They aren't. I said DEPRECIATION is extractable.