Functional Depreciation Vs Design & Appeal

[Mike Boyd]

In another post, we were discussing some decorating issues that made a house ugly and difficult to sell. Most of us had answers that were correct and that its ugliness DID affect the final value in one way or another.

If memory serves me, functional depreciation is one or more characteristics that cannot be economically be cured, thus reducing its marketability. This can be illustrated in a poor floor plan, small...or even too big....rooms, one or more upstairs bedrooms with no bathroom, lack of closets or storage,etc.

Color schemes, types of light fixtures, floor covering types as well as covering....these are decorator items but are still real estate, and should be adjusted for under Design and Appeal. You would not adjust for wall hangings, curtins or drapes, furniture selection, etc. because those items are personal property.

One of the reasons for making a distinction is because, if you don't, the underwriter will! Some lenders will reject granting a loan on a house with functional obsolesence. At the least, they will make you write lengthy essays on why you think the functional capacity of an entire home is diminished because the floor coverings, or whatever, is unpleasant to look at.

The other reason, of course, relates to the definition of functional depreciation. Look it up.

Mike

 

[Chris Colston]

Originally posted by Mike Boyd@Aug 10 2004, 06:18 PM
Color schemes, types of light fixtures, floor covering types as well as covering....these are decorator items but are still real estate, and should be adjusted for under Design and Appeal. You would not adjust for wall hangings, curtains or drapes, furniture selection, etc. because those items are personal property.

I'm not so sure I would deal with those items under DESIGN and APPEAL. I use that line to describe the architectural type of the property, RANCH, CONTEMPORARY, TOWNHOUSE, MULTI-STORY, etc. and what appeal or lack of appeal it might have on the market.

The items you mention are still part of decor and can be changed once the new buyer moves in. I completely changed ALL of the flooring in my house when we bought it, from carpet and vinyl to 18" ceramic tile. I torn down the old French colonial wall paper and painted and wall papered to my taste. I also changed out all of the light fixtures. These are easy changes. If I really need to adjust for someone else's decorating taste, I use one of the blank lines at the bottom of the grid and then I explain, explain, explain.

 

[tommcsherry]

If memory serves me, functional depreciation is one or more characteristics that cannot be economically be cured,

Mike, I think external obs is the only thing that cant be cured,,,but I'd have to check again. Are you making a differentiation between functional obsolescence and the depreciation caused by functional obsolescence that I am not getting here?

 

[Pamela Crowley (Florida)]

Functional Curable = economically reasonable and feasible.

Functional Non-curable = economically not reasonable or feasible.

 

[Otis Key]

Functional is curable and incurable

Superadequacey can be curable and still functional.

External incurable! NEXT! :lol:

 

[Mike Boyd]

Otis,

Is "superadequacy" a real word or something appraisers have coined to mean over-improved? Either way, how can you economically cure an overimprovement?

Pam,
You are right. There is both curable and incurable function obsolesence and curable means ECONOMICALLY and/or FEASEABLE.

Tom,

Functional obsolesence is the characteristic, functional depreciation is the measurement of the obsolescence.

Cris,

In the grid, it is design and appeal. I have always looked at that as two different items. Architecture and style would be under DESIGN and color schemes etc would be under APPEAL. If it had a GOOD design, and GOOD appeal I would type in GOOD/GOOD and I would adjust if the comps were AVERAGE/AVERAGE or GOOD/AVERAGE or for anything other than GOOD/GOOD.

Mike

 

[Otis Key]

Mike - I believe it is a real word, but couldn't guarantee it since I was told by an MAI (my ex). Cure it - remove it - cut it out, cut it down, it takes less effort to cut out an or remove an item that contribures little or no value when it cost so much. Move it to another place where it might actually contribute more rather than less.

And Mike, in your response to Chris, why can't it be placed in the other location of the grid shown as "Funtional Utility"?

 

[Brad Potts]

I feel inadequate

 

[Chris Colston]

Originally posted by Mike Boyd@Aug 10 2004, 07:46 PM
Chris,

In the grid, it is design and appeal. I have always looked at that as two different items. Architecture and style would be under DESIGN and color schemes etc would be under APPEAL. If it had a GOOD design, and GOOD appeal I would type in GOOD/GOOD and I would adjust if the comps were AVERAGE/AVERAGE or GOOD/AVERAGE or for anything other than GOOD/GOOD.

Mike

But you haven't been inside the comps, so how would you know?

I have also separated the APPEAL from the DESIGN....Hypothetical example...I have a 3 story contemporary building in a market that is predominated by ranches. There are other contemporaries in the market. My research determines that the contemporaries take about 6 months longer to sell than the ranches. I have to use ranch style comps because that is all I have that are currently sold. I will pick an older contemporary as support and mark the line....3 Story Contemp/Average.....Ranch/Good. This is particularly true in retirement communities where stairs can be a deterrent to a sale. I was always taught. and ahve it restated in CE classes, that line referred to the APPEAL of the DESIGN in a particular market.

I restate, decor is easily changed...hence the old problem of "carpet and paint allowances". I give a line item all by itself.

 

[The Bob]

I disagree with your reasoning re: design/appeal in the grid. For instance if you are comparing a ranch to a cape you would be adjusting for the difference in value, all things being equal. For instance, a 1600 sf ranch vs a 1600 cape. The ranch will sell for more (again, all other things being equal). In the discussion of decor, I think you could handle it under "Condition" or under "Functional Utility". Much the same way you could, theoretically, handle bathroom count....either under room count or under utility. Sometimes we get too "form bound".