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tompton

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Freshman Member
Joined
Nov 12, 2007
Professional Status
Certified General Appraiser
State
Minnesota
How do I prove effective age with market support?
 

Howard Klahr

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Oct 4, 2004
Professional Status
Certified General Appraiser
State
Florida
You extract applicable deprecition from your sales comps
 

PropertyEconomics

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Jun 19, 2007
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Certified General Appraiser
State
New Mexico
Why not use actual age and use market extracted depreciation as your means of adjusting for age?
 

tompton

Thread Starter
Freshman Member
Joined
Nov 12, 2007
Professional Status
Certified General Appraiser
State
Minnesota
So I would adjust for is in the grid like I would for size, location, etc? How do I determine the effective age of the comparables.

Sorry, I am new to this and am in the process of learning what I can.

Thanks
 

tompton

Thread Starter
Freshman Member
Joined
Nov 12, 2007
Professional Status
Certified General Appraiser
State
Minnesota
Yes, they are apartment buildings built in 1959 through 1969. The subject was built in 1969.
 

tompton

Thread Starter
Freshman Member
Joined
Nov 12, 2007
Professional Status
Certified General Appraiser
State
Minnesota
Yes, modest differences
 

PropertyEconomics

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Jun 19, 2007
Professional Status
Certified General Appraiser
State
New Mexico
IF the modest differences are attributable to square footage, condition, or simply slight variations in market rates, you may well have an instance where 10 years age difference makes no measureable difference in value. My first reaction is that reporting actual age and not making any adjustment for age is probably what is indicated here. Certainly you know your market better than I do, but I would seriously doubt the slight age difference is recognized in sales prices of your comparable sales. That being the case I would not mess with effective ages at all.
 

Kali the Boston Terrier

Senior Member
Joined
Jul 7, 2003
Professional Status
Certified General Appraiser
State
Michigan
I find people who use effective age for comparables are making a few assumptions:

1) You are trying to adjust for condition, but don't feel comofortable saying that directly. Effective age is a logical alternative because it quantifies something that is largely qualitative.
2) You are basically saying you know the condition of the interior, and feel compfortable rating the life and remaining life of a property.

Both assumptions I'm not sure I would stick my neck out too far with without thoroughly explaining. At that point why not just use a qualitative ranking system and not arbitrarily assign numerical numbers to something that is qualitative?

However if one had to do this for demo purposes or you had good solid information, the way to do it you need a few things...
1) Land value of each of the comparables, don't estimate really know it.
2) Replacement cost new of property
3) Recently replaced items and when they were done
4) Any functional or external obsolescence and their affect on value

Without a good handle on 3 & 4 you are just grabbing at straws, and although you may have 1 & 2 looking pretty convincing you have missed the point. Also with apartment buildings there are many functional obs that are present that you may not know of if you have not done many prior...lack of seperate meters, high ceilings in common areas, owner paid heating, etc.

So anyway do a cost approach on each of the comparables based ont the above information the residual is the physical depreciation. You could either just indicate % of depreciation or you could go a step further and divide the % by the actual age and arrive at the straight line amount of depreciation, the properties with newer roofs, retopped parkign lots, updated kitchens, etc may have less % per annum and that should signify that short lived items when cured reduce effective age. To arrive at a theoretical economic life take the per annum depreciation (say 1% per year) 1/0.01= 100 or 100 years. Try and do this with a comparable that has had really no updates or repairs and a newer built sale.

ALso beware of an old friend called economic obsolescence, which in our market reflects itself in that the market value is less then the cost to build...immediately after construction. That falls under the external obsolescence category.

Anyhow this is a brief overview of how to do this...I'm sure others will have more to contribute. But it's not just a quick process to really truly extract.
 
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