Hmmm...interesting.
"Marshall & Swift Ratings come from the market"
Truth be known, the M&S 'ratings' are made up words with associated definitions THEY wrote. In a copyrighted document. The GSE's can't just appropriate these for their own use.
Because virtually everything in the universe is based around mathematics, the UAD process now greatly corresponds to that fact. The 'words' M&S decided to use years ago for quality did not have numerical quantities associated. So when the FHFA and the GSE's decided to make virtually the entire GSE appraisal form into a mathematical format, they had to quantify certain aspects with numbers that can be machine read. Thus the C & Q rating numbers we now MUST use (except sometimes on page 1 if the appraiser decides to use the 'banned' words there instead of defining the individual components condition numerically as should be done).
"concept known as Effective Age, which is how I do appraisals"
You and many other appraisers still do that (likely based on our initial training & probably the mentor's unexplained reasoning), even though the GSE's don't really want EA to be used, but currently allow it as a separate line item adjustment.
The problem with EA is it is a fictitious number based entirely on subjective appraiser observations & decisions, not on actual quantified numbers (the Actual Age). Yes, M&S has a neat chart to visualize what EA 'might be' based on their estimation and some descriptions. But EA is based on speculation that improvements have actually been made, or not. And for comparables, probably not actually observed up close and personal by the appraiser.
Unfortunately, the current GSE forms make appraisers 'estimate' the subject EA, and then that magic number is worked in to the depreciation percentage based on straight line acrual using an economic age of 50, 65, 70 or whatever - which is simple, but not realistic for the multiple components in a building that depreciate at different rates. (M&S says so.) However, sometimes simplicity may be easier for laymen, appraisers and underwriters to understand and accept.
Why use an EA adjustment, when the exact same process can be used with the Actual Age? Age, Condition (& EA) all relate to the same aspect on the property. If making adjustments in all those fields on the grid, it's like tripple dipping. Isn't it more realistic to make ONE adjustment for Age only?
Condition is based on observation. In fact, M&S says "Applying any additional condition modifier once the effective age has been established based on condition would be redundant." (This assumes it is correct.) The exact same thing can be said about basing depreciation on Age rather than EA - except that it is more accurate. And the adjustment math is more supportable. Use the % difference in the Age/Life (straight line) depreciation between subject and comp, and multiply that by the sale price to arrive at a dollar adjustment (round to nearest $100).
Establishing an EA is subjective; there is no ONE WAY to do that practiced by EVERY appraiser. (Which is probably why the GSE's prefer it not be used, but tolerate it if done, providing explanation is included. [by the way - do your reports include such an explanation of your adjustment process??]).
I can see why M&S 'might' be making a move to numerically quantify their 'words' used for Quality (Low > Excellent). After all, their 'book' is the most quoted reference for this. But the GSE's guarantee the most loans. So having the two tie together logically makes sense.
But....their explanations in the book for conditions tieing to EA are not quantified numerically (mathematically) as the GSE's have done. So they may need to apply that also.
Ok, it looks like you are not familiar with using this concept, so I'll illustrate it side by side with condition C ratings. When you use EA, you don't make a separate condition adjustment on the condition line, the age and condition is combined into one EA on the AGE line. There is nothing on the condition line, there is only an adjustment on the AGE line.
Given the economic life span of improvements that are not significantly remodeled or updated, but only maintained, last about 65 years (and given typical land/value ratios) as an approximation, each one year given to effective age is typically (not always) a 1.5% adjustment to the total value. So a home that has aged well for 4 years has likely accrued an additional EA of 2 years, with carries a 3% adjustment on total value (land + house = sales price)
So, you have a 5 month old home, it is in NEW CONDITION (not average condition, not good condition). The home has been well maintain in those 5 months and there is no significant functional obsolescence or physical depreciation. It is in C-1 condition, the EFFECTIVE AGE is 0 years
Now, after 4 years since construction was completed, lets say the home is well maintained with no significant deferred maintenance. It likely has an EA of 2 years, but is now a C-4. Effective age is progressing in a mathematical progression as in wear and tear, as in depreciation and obsolescence (as it is occurring in the real world); whereas, the C rating has no reliable correlation to these mathematically or proportionally.
To further prove this point:
Now lets say you have a well maintained home that lacks significant updating or remodel and it was built 20 years ago, it would likely have an EA of 10 years and it would likely have a C-4 rating.
So, therefore, Mathematically, according to a UAD model, a 4 year old house that has been well maintained is in the same condition C-4 as a 20 year old house that has been well maintained (no remodel or updating).
Now, to the 20 year old house, lets add some significant level of updating and/or remodel (but not a complete updating or remodel or renovation), and the condition rating goes to C-3. The EA will depend upon the level of updating and remodel such that it should compare to an equal EA of another house of any other age that would have the same market reaction to its age and condition (in other words, the same EAs of such homes have no relative adjustment). So lets take a 6 year old house and update it. Well, there is typically very little to update in a 6 year old house to make it look like and compare directly with a new or 1 year old house. Lets say that level of updating was done. In such a case, the EA would likely be 1 year and it would have a C rating of C-3. Well, you wouldn't update or rehabilitate virtually all building components of a 6 year old house to make it a C-2 or C-1, so that isn't going to happen. This home would compare with a 0 to 1 year old house in the market with no relative EA adjustment but would have a C-3 rating.
So the question is, obviously the C ratings have no correlation in a linear or even positive or negative direction in regard to what is actually present in the market, so what are you doing on the age line to counter this lack of logical progressive correlation?
Marshall & Swift Rating are relevant to the Market, not Q ratings. If I tell a custom builder that I want very good to excellent quality fixtures, and good quality cabinetry throughout, with very good to excellent quality solid stained panel doors in mission style but in the basement some average quality painted hollow panel doors will suffice, they know what I'm talking about. It the language of the market.
Do you think the custom home builder will put together items for me with Q ratings?
M&S interviews builders and finds out what is going into their homes that they are selling, the cost of those items that were put into the home and sold. They aren't the cost of items on a shelf in home depot, they are the items that sold in the market in a home and the cost that the market appeared to pay for those items within that context - it is based upon market research. Q ratings may be based upon, in some loose way, to M&S or other cost manuals, but they are fictional characters. You need to understand quality and the relationship of cost to quality.
The most important point that you miss regarding Q ratings is that it doesn't apply to individual components, it only applies to the overall rating of the dwelling. You would not say that those granite slab counters have a Q rating of C2 or C1 you would say those granite slab counters are of very good or excellent quality (or whatever they happen to be in cost Manual Terms).
This is an example of what you may find under the grid with my appraisals, it basically covers the areas in the grid above the square footage line since UAD was implemented. It allows me to do the math, since that space is now been taken over by UAD underwriting code.
These are typically the percentage adjustments that are given; whereas, in the grid below the square footage line, I can place the net contributory value estimate inside the grid where the item is listed; such as, Deck, Patio(8k), which makes for an easy comparison (and rechecking) from subject to comps by simply looking at and comparing the estimated net contributory numbers across the grid to calculate the adjustments. So comparing Subject, Deck, Patio(10k) with Comp 1, Deck Patio(8k), one would then have a +2,000 on the deck patio line for comp 1. If I used these comps in another report, I already have the contributory values estimated for use in another appraisal rather than just a relative adjustment. It means I stand by these estimates of EA, location, decks and patios, etc, not only for one particular appraisal but in others. I don't make arbitrary adjustments to create some predetermined result. Taking a comp out of one and putting it into another with the same valuation attributes is a nice way to prove what you are doing makes sense, since if it didn't, then it simply wouldn't adjust to a level that makes sense with what you are doing with the other new sales.
SUBJECT [ Location = Corner,Gradual Slope || View = Avg(+) || Quality = Avg(+) || Effective Age = 10 Eff
Comp 4 [ Location = Street Interior, Gradual Slope/Sup 3% || View = Gd(+)/Sup 2%|| Quality = Gd(+)/Sup 10%|| Effective age = 3 Eff/Sup 10%|| Time Adj/36 wks(+4.2%)]
Comp 5 [ Location = Cul-de-sac Road, Gradual Slope/Sup 6% || View =Avg/Inf 1% || Quality = Avg(+)/Sup 4% || Effective age = 8 Eff/Sup 3%|| Time Adj/Listing(0%)]
Comp 6 [ Location = Street Interior, Gradual Slope, near Commercial Development/Inf 3% || View =Avg/Inf 1%|| Quality = Avg(+)/Sup 3% || Effective age = 3 Eff/Sup 10% ||Time Adj/Listing(0%)]
