External Obsolescence?

[timd354]

Keep in mind that external influences have a much greater effect in weak markets than in strong markets.

That is so true, a couple years ago when appreciation was over 25% per year in most of my coverage area and multiple contracts and bidding wars were the norm, external influences such as backing to a freeway had almost no effect on value as buyers were desperate to buy anything at almost any price and ignored virtually any "problems". Now that the market has changed and it is clearly a buyer's market in most of my coverage area, these types of properties are virtually unsellable without a huge discount...I had one recently where the dimunition of value of a property backing up to a freeway appeared to be 15-20%.

 

[Riick]

That is so true, <<snipped>> these types of properties are virtually unsellable without a huge discount...I had one recently where the dimunition of value of a property backing up to a freeway appeared to be 15-20%.

I think minus 15-20% would be a typical market discount - in most places at most times. In boom times, as you said, anything goes.
Chicken Eggs: $1@ - California Gold Mining towns c.1849

 

[masmia]

I want to make a an adjustment reflecting this less than desirable feature. I believe this is considered exterior obsolescence and want to adjust the subjects site on the sales grid.

I'm surprised noone has brought this up yet but external obsolesence is not determined by what you want or beleive. If there is market evidence to suggest a negative impact on the subject's value due to the highway then you have EO and would adjust accordingly. If there is no market evidence than what are you goint to adjust for? Are you goint to pull a magic number out of thin air for the adjustment?

 

[masmia]

Just figured I'd add that to determine if there is or is not external obsolesence in the absence of recent sales you can look at old sales of homes with similar highway and see how they sold in relation to the other old sales of the same time period without the highway. Either that or go to a market area similar to the subject's and see if you can find comps with highway.

 

[KD247]

I'm surprised noone has brought this up yet but external obsolesence is not determined by what you want or beleive. ..

Masmia, I think I understand what you're saying, but many appraisers are too quick to ignore this type of significant negative influence simply because it's not shown by a cursory search of the data. The highway proximity and high wall are obviously going to have some effect on value, and has to be addressed. You are right though, in that the effect shouldn't be presupposed and that the adjustment for market reaction has to come from somewhere.

 

[Riick]

If there is no market evidence than what are you going to adjust for? Are you going to pull a magic number out of thin air for the adjustment?

You are right though, in that the effect shouldn't be presupposed and that the adjustment for market reaction has to come from somewhere.

(1) Somewhere along the line most people take a class that tells them about concepts such as external depreciation.
One typical example is location on a high-traffic street.
Has the OP made a giant illogical leap to think that location that Backs
on high-traffic street has similar external depreciation to one that
Fronts high-traffic street??
So much for presuppositions.

(2) What DO you do if there ARE no recent nearby sales with same characteristics, and nothing within a year? and nothing within 2 years!?
---(a) PIOOYA adjustment?
---(b) Go back 3 years and then do a time adjustment?
---(c) Go 6 or 60 miles away to a supposedly similar neighborhood.
How accurate are any of those?

I have my own answer, which seems to be viable, but I'm curious to see what discussion will follow -if any.

 

[KD247]

...
(2) What DO you do if there ARE no recent nearby sales with same characteristics, and nothing within a year? and nothing within 2 years!?...

That's a big question, because it generally addresses analysis of any appraisal problem. My answer? Use the best data available, whatever that happens to be, hopefully a recent sale of a model match but, worst-case, perhaps nothing more than a guesstimate based on nothing more than general experience in the area, combined with interviews with brokers and buyers. Usually, the issue is resolved somewhere in between, typically by using distant and/or older sales.