Gold Supporting Member
- Dec 5, 2008
- Professional Status
- Certified Residential Appraiser
how is it often said here? a new roof is lipstick on a pig.
or perhaps a case of physical life vs economic life -A buyer will likely buy and renovate. If my remaining economic life is based on that then it does assume maintenance moving forward. Maintenance in the form of renovation. I have never in my market seen a 30 year old row home razed and someone purchase a tiny lot sandwiched between other town homes.
Unless REL means: if not maintained and the property just sits vacant, how long will it continue to add value to the site.
The idea of taking total life of lets say 60 and determining effective age of 33 thus leaving 27 years is, in my opinion, not REL, but useful life. Useful -vs Economic
REL does. If renovation occurs, then the Remaining economic (i.e.- "useful") life is extended. @gregb posted a graph showing a typical exampleUnless REL means: if not maintained and the property just sits vacant, how long will it continue to add value to the site.
You have Physical life and you have Economic life. Useful is economic. About the time I started appraising, on my way to Bentonville, Walmart built a warehouse about 3 or 4 miles out of town on a narrow 2 lane road. Nearby someone built a new brick home on 40 acres. Less than 15 years later in the midst of the boom, the 40 acres sold, and someone built a subdivision. They tore down this 15 year old house. That house had a remaining physical life of decades. But it had reached the end of its economic life. Not easy to predict. But the 40 acres was originally agri land, probably worth about $2000 / acre. I just appraised an executive property on 30 acres, and I found 3 comps. One was a house which sold on 20 acres and immediately converted into a small office. I found 2 others in the 20 to 40 acre range that were still residential with horse and cattle equipment. The first basically had met the end of its economic life as a house. It was predictable being on a major state highway. The other two are very near the highways, but both were on dirt roads although the land sold for $30,000 an acre or so. One, in fact, was only a half mile from that warehouse I talked about.in my opinion, not REL, but useful life. Useful -vs Economic
physical life and REL , though they can intersect , are different concepts. A property's physical life/effective age is X years, but it's REL estimate might be Y years, because REL is market driven.. With MV opinions we go with what is typical for a market - ( we can not predict what will happen exactly with any one individual property ).In my case - if this town home was left to sit, it would be not habitable within 5 years as the roof would leak, etc.... (Its already a C5). I interpret this to mean the REL to be 5 years plus any amount of time the vacant uninhabitable property will continue to add value to the site with no further maintenance. Is that right?
Or do I say that since it is common for these vacant foreclosures to be renovated, the REL would easily be 30+ since the new renovation would bring the property up to C2 condition. In this case the REL is based on a prediction that the home will be purchased and renovated.
I do think when we see in the cost manuals the total life of 60 years that means regular maintenance.