External obsolescence prove it exists

[DTB]

External, by definition, is EXTERNAL of the subject property. Being too big, is a feature of the improvements, and must be functional.


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The subject is too big? How is that determined? By comparing to the market (external).

Too is a comparative word, it does not come into play by itself.

It is most certainly a case of EO.

 

[Thomas Fiehler]

I agree totally with Ben's example. The total $ is divided between the site and improvements (I only had to go back 30 years when I wrote my demo)

 

[Jim Bearden]

Now pray tell why location is the factor which is where the land is located is not the issue. It must be because you would never pay the same for a lot so affected compared with one not affected.

OK let's take another tack which is the discussion reversed. House with a view versus one without do you add to the structure for economic superiority, I think not. The land is affected not the house.

Bill I did not check the other thread so I will assume your last line is correct, if so that is not what I meant. I mean that if both are similarly affected so a comparison would not show a location adjustment. But I maintain the impact is on the land value not the improvements.

Ben LBR may be long forgotten by most but I have used it for years for commecial appraisals as one primary adjustment for industrial. But I don't see what it would have to do with an SFR. Please explain.

Mr. Dayton, your vacant to carwash doesn't hold water as it then becomes a HBU issue. If it is now improved with a house and the land value is increasing in value but the house in good condition but is decreasing because the site is increasing in value. This is functional because its function as a house has diminished until such time that the value in the land exceeds the value as a house.


I totally disagree that EO is really true. But I do use it in reports because to state the reason why I'm not using it because it is a complex issue and is suitable only for a place like here.

 

[Mr Rex]

Nice debate. I wonder when Functional becomes External? In Mr Bearden's case, H&BU has changed from Residential to Commercial because of location. The house is a functional under-improvement due to external forces. At some point the teeter totter tips, but I think they are holding hands the whole time.

 

[incognito]

Mike, with that logic, ALL depreciation would be EO! After all, we determine functional and physical from the market, don't we???

I am fairly well read, and can think on NO single published example where an over improvement is classified as external obsolescence. It is a CLASSIC, Appraising 101 example of functional obsolescence, due to super adequacy (over improvement in size). I could bore you with dozens of quotes from appraisal texts supporting this, but I would prefer to read just one which supports this interesting opinion of yours???

Jim, I am inclined to think that frontage on a railroad track would be an example external obsolescence, where an adjustment in the sales grid would be under "View", not "Location". The lot across the street with no railroad frontage is certainly in the same location, just has a different view.

 

[DTB]

Bill,

I'll go along with you to a point. What factor brings the subject down when situated between 2 dumps of similar size and utility? You know the kind, where the neighbors on each side have let the house go, several cars up on blocks etc.

 

[Mr Rex]

If you want a simple answer to the original question, does EO exist?, I will give you one. In my market, due to the number of REOs of manufactured homes, a properly marketed "arms length sale" will sell for 15-25% below costs easily. Its not because the house is too da** big or any other Functional problem, its an external factor. EO, textbook. Oversupply in any market is EO.

A house that is in an area that is transitioning to commercial and is not reaching its H&BU because of external forces, EO in my opinion. Sure its functional in a way, but the functional problem doesn't occur without the external factors. Attribute it all to functional if you wish, I will agree to disagree.

 

[Ben Vukicevich SRA]

Jim B,

Mike G wanted to know how to break-out the EO attributable to the improvements in the Cost Approach. LBR is the way to do it.

 

[Jim Bearden]

If you want a simple answer to the original question, does EO exist?, I will give you one. In my market, due to the number of REOs of manufactured homes, a properly marketed "arms length sale" will sell for 15-25% below costs easily. Its not because the house is too da** big or any other Functional problem, its an external factor. EO, textbook. Oversupply in any market is EO.

A house that is in an area that is transitioning to commercial and is not reaching its H&BU because of external forces, EO in my opinion. Sure its functional in a way, but the functional problem doesn't occur without the external factors. Attribute it all to functional if you wish, I will agree to disagree.

I thought about that to but realized that in that case the underlying land would decline in value since nobody would by the land thus rendering sales at very low prices or even negative. Now that sounds silly but if it was basically worth nothing nobody would take it off your hands because of taxes, liability insurance and the time value of money. Now would somebody pay something yes but it would be speculation.

Mr. Geiger view I have never heard before but in any event the results are the same.

 

[The Warrior Monk]

I hate to find myself agreeing with Bill G. , but he is correct. EO by definition is an element of accrued depreciation, which applies only to the improvements.

That of course doesn't mean that locational factors don't influence the value of a lot, but it is not referred to as EO.