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Estimated Remaining Economic Life

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gregb

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Joined
Sep 3, 2011
Professional Status
Certified General Appraiser
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California
Appraised an 8 unit residential income apartment. Built in 1960, effective age 40 years due to regular maintenance and some limited updating. Estimated remaining economic life 15-20 years.

Long time bank client, reviewer calls to tell me the underwriter is having a fit over the estimated remaining economic life, because it was not at least 30 years. I asked what does it matter, don't you usually only make 15 year loans on these properties. Reviewer said, that is not relevant, because the loan is amortized over 30 years. Ok, let me pull out my M&S and get back to you. :)
 

Michigan CG

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Nov 1, 2006
Professional Status
Certified General Appraiser
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Michigan
It is late on a Friday night so, not to get into a serious discussion but there are ways to support remaining economic life using the cost approach and sales of similar properties. Considering the property is an income producing property one could also compare rents of the subject to rents of updated/newer properties.
 

RebelNYC

Junior Member
Joined
Aug 6, 2009
Professional Status
Certified General Appraiser
State
District of Columbia
If the average economic life is 55 years, a 40-year effective age means the property is in very poor condition.

You have two choices, market extraction from sales or age/life which is basically the guess you have made.

If you're really having trouble, you can break out the long lived and short lived components. Many appraisers who don't really know anything about value will make judgments like this based on the quality of say, kitchen appliances. You also have a problem with appraisers who have grown up in largely suburban areas and have little experience with cities. They think everything that is old is bad.

You probably should talk to investors in the area.

EDIT: Dude, you're in SoCal. There are tons of old apartment buildings in places like Venice Beach that are worth a lot of money. You're in an area that has a housing shortage. No one cares about updated appliances. They care about location. If the structure has been well maintained, there is no way the place is 70% depreciated.

Honestly, I'd say that you should NEVER claim that level of depreciation without a specific analysis of deferred maintenance and/or functional obsolescence.
 
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AMF13

Elite Member
Joined
Jan 24, 2002
Professional Status
Certified Residential Appraiser
State
California
There are tons of old apartment buildings in places like Venice Beach that are worth a lot of money.

Exactly why I turned down the last duplex there that tried to come my way.
Abbott Kinney, almost on the beach, your HBU may be Snapchat offices or something. :cautious:

Last time I was in Venice years ago, saw a chain saw juggler at the beach.
I hear it has changed.
Threw geo incompetence card. :peace:

Have gone to shoot comps that sounded like nice houses for almost $2M. Been scraped, on west side of LA.
I am actually more comfortable working there, I have an idea what is going on. Unlike Venice. o_O

Edit, revise 15-20 to 10-15 and see if they squawk. LOL.
 

glenn walker

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Oct 11, 2006
Professional Status
Certified Residential Appraiser
State
California
California - That building will be around for a lot longer than 15 years-20 years :)
 
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