new construction vs used housing

[sbourque]

I am in a bit of a pickle here in Michigan. I am appraising a sale and came in pretty low in value. The realtor, of course, is angry and has provided me with comps but they are all new construction. The subject is 12 years old, builders grade interior, well kept home. There are no sales or listings within the subdivision. All of my comps support a lower value, the new construction comps would get to what they need. Any thoughts? and what % of value would you use in a condition and age adjustment when using new construction vs slightly older homes.

 

[jlabauve]

If you used 8 - 18 year old comps in similar condition to the subject, then those are the ones you should have used. Don't use new construction in order to "get what they NEED." What they need is an honest, straight-up appraisal.

 

[Michigan CG]

Depending on what part of Michigan you are in you have to consider the external obsolescence that exists when you are trying to do an adjustment for age. In my county (Monroe-just south of Detroit and Wayne County) I have come to the conclusion that the EA is about 20%.

Most likely the EO is built into the sale prices of all the homes so EO is not as much of a factor, but it should be considered.

No one in their right mind will pay the same for a 12 year old house as a brand new home in most cases.

I suggest talking to different Realtors, appraisers and market participants if there is not enough sold data to determine the value difference in the age differences.

 

[sbourque]

EA? not sure what you mean, 20% off condition and 20% off age difference or total?

 

[Michigan CG]

EA? not sure what you mean, 20% off condition and 20% off age difference or total?

External Obsolescence
An element of depreciation; a defect, usually incurable, caused by negative influences outside a site and generally incurable on the part of the owner, landlord, or tenant.

Externalities
1. The principle that economies outside a property have a positive effect on its value while diseconomies outside a property have a negative effect upon its value.......

Correction, it should have been EO.

What you need to find out is what is the proper adjustment for age. It is not a number anyone here can give you, but rather something you will have to find in your market. I brought up the EO because that is part of the overall depreciation in the SFR market today and if you were going to do a cost approach to figure out the age adjustment you needed to consider EO.

 

[Paul Isolda]

I am appraising a sale and came in pretty low in value.

Collectively as appraisers we need to stop writing, speaking, etc. like this. If your opinion of value was below what the data supported then you "came in pretty low." If your opinion of value was supported by what you considered to be the best available data then is was not low.

 

[AlwaysLearning]

Depending on what part of Michigan you are in you have to consider the external obsolescence that exists when you are trying to do an adjustment for age. In my county (Monroe-just south of Detroit and Wayne County) I have come to the conclusion that the EA is about 20%.

Most likely the EO is built into the sale prices of all the homes so EO is not as much of a factor, but it should be considered.

No one in their right mind will pay the same for a 12 year old house as a brand new home in most cases.

I suggest talking to different Realtors, appraisers and market participants if there is not enough sold data to determine the value difference in the age differences.

The sentence in red is confusing as it implies that there is a correlation between an external obsolescence and an adjustment for age. An external obsolesce is “caused by negative influences outside a site” so why would I have to consider it when “trying to do an adjustment for age”.

I personally do not see any correlation between the two. An age adjustment should reflect the difference in physical depreciation between the subject and comparable if the market recognizes it. An external obsolescence (if one exists) is a separate issue.

 

[Pittsburgh Pete]

The sentence in red is confusing as it implies that there is a correlation between an external obsolescence and an adjustment for age. An external obsolesce is “caused by negative influences outside a site” so why would I have to consider it when “trying to do an adjustment for age”.

I personally do not see any correlation between the two. An age adjustment should reflect the difference in physical depreciation between the subject and comparable if the market recognizes it. An external obsolescence (if one exists) is a separate issue.

If read in the context of the OP it makes absolutely perfect sense. OP was inquiring about comparing new construction with a 12 year old home. Mr. Evans was pointing out that when considering the new construction EO would have to be addressed in order to make sense of an age adjustment.

Not to be picky, but you're being picky having not read the whole thread?!!

 

[CJ1234]

I am in a bit of a pickle here in Michigan. I am appraising a sale and came in pretty low in value. The realtor, of course, is angry and has provided me with comps but they are all new construction. The subject is 12 years old, builders grade interior, well kept home. There are no sales or listings within the subdivision. All of my comps support a lower value, the new construction comps would get to what they need. Any thoughts? and what % of value would you use in a condition and age adjustment when using new construction vs slightly older homes.

Not to put focus on the orginal poster, but I really want ALL appraisers to be more aware of language.

You came in at your opinion of value. That value was below contract price.

That said, I agree with poster #2
The agent provided sales. Are they better, or more relevant than the Comparables you utilized? If not, don't include them.

 

[AlwaysLearning]

If read in the context of the OP it makes absolutely perfect sense. OP was inquiring about comparing new construction with a 12 year old home. Mr. Evans was pointing out that when considering the new construction EO would have to be addressed in order to make sense of an age adjustment.

Not to be picky, but you're being picky having not read the whole thread?!!

I have reread the original post and still find the statement “Depending on what part of Michigan you are in you have to consider the external obsolescence that exists when you are trying to do an adjustment for age” utterly confusing.
Maybe you consider me being picky but I am only trying to learn something new. So if you have a book or other info in writing showing that there is a correlation between an external obsolescence and an age adjustment, please let me know.