Remaining economic life for loan purpose

[VolcanoLvr]

A peer appraiser in my area asked me the question below. I'm curious how other appraisers around the nation approach this issue of remaining economic life for MFH's.

How do you calculate it, especially when there has been NO updating done to the MFH?

"With many of the manufactured homes in our area built in the 1990’s, these homes are now 14-24 years old. Many of these have had little work done to update them, thus their effective age is probably close to their actual age. What do you use for an expectant life of such dwellings?

I’ve seen appraisers use 50 or 60 years, but Marshall and Swift indicates the typical building life of an “average” quality double-wide at just 30 years, and I will go as high as 40 years depending on quality. From what we often see in the real world, that is probably about right.

Such dwellings built in the 1980’s that are close to 30 years old are often found with little or no remaining economic life in them. That being said, those built in the 1990’s may have just 6-16 years of life left in them without major updates, right?

My question/concern on this, is how are sales of these dwellings getting conventional and sometimes FHA financing? FHA requires a minimum remaining economic life of 35 years, which is essentially a brand new manufactured home according to Marshall and Swift."

 

[Terrel L. Shields]

I don't ask what the lenders think...let the chips fall where they may.

The NADA system will give you a value but not the remaining life. But if you use a typical COST and not ignore the expense of the foundation, etc. I generally get a market extracted total life (like you say) of 35-45 for a good double wide and 30 for a single wide economy unit. That is what it is. I understand the problem for the lender, but as much as I wrestled with this issue years ago, I am pretty confident it's fundamentally true, even though one can point out any number of exceptions where units that were well maintained still bring quite a price. Alternatively, especially in the bust, you sale 5-10 year old units sell for $5,000 or so on lots of $10,000.

Today, 40 years ago was 1974. Think about those units that were new or near so then. They are pretty much all gone or so shabby as to not be worth the match to burn them in any rural or small town setting. In a few places where such units remain, they are either on their last legs or have been extensively maintained, perhaps with new siding, roofing, additions or housed under a shed roof.

 

[CANative]

I've worked several MH parks and there are mobiles built in the mid to late 1950's that are collecting $750/month in rent. They can probably go on doing that for many years to come.

FHA likes to see 30 years REL but it's not a hard stop to a loan.

Unless the coach is really raggedy or there is pressure to buy the lot to redevelop to a new use, an estimate of 30 years REL would be hard for a critic to find fault with.

1958 Skyline

 

[Sherrie]

The NADAguides Manufactured Housing CONNECT will give you the remaining physical life expectancy (as a range). Based on the criteria entered, you will find the result on line 5 of the printed value report.

If memory serves me correctly, there was a study in 1998 that estimated that manufactured homes can have a life expectancy of 70+ years. I am unable to locate a copy of the study but will edit this post if I come across it.

 

[CANative]

Good call Sherrie... but it is physical life. Not REL.

 

[VolcanoLvr]

This form provided by CAN indicates a physical life of 63 to 70 years for that particular MFH.

As of 2014, the home is 24 years old. Add that to the red arrowed number range.

So apparently this is where a 70 year life comes from.

This is quite a bit different from info in M&S, pg E-7.

 

[mark hurlock]

A peer appraiser in my area asked me the question below. I'm curious how other appraisers around the nation approach this issue of remaining economic life for MFH's.

How do you calculate it, especially when there has been NO updating done to the MFH?

"With many of the manufactured homes in our area built in the 1990’s, these homes are now 14-24 years old. Many of these have had little work done to update them, thus their effective age is probably close to their actual age. What do you use for an expectant life of such dwellings?

I’ve seen appraisers use 50 or 60 years, but Marshall and Swift indicates the typical building life of an “average” quality double-wide at just 30 years, and I will go as high as 40 years depending on quality. From what we often see in the real world, that is probably about right.

Such dwellings built in the 1980’s that are close to 30 years old are often found with little or no remaining economic life in them. That being said, those built in the 1990’s may have just 6-16 years of life left in them without major updates, right?

My question/concern on this, is how are sales of these dwellings getting conventional and sometimes FHA financing? FHA requires a minimum remaining economic life of 35 years, which is essentially a brand new manufactured home according to Marshall and Swift."

Remaining economic life is a judgment or expectation not a product of strict mathematical calculation. The reason is due to variables that are not consistent among comparables. This is why MS uses an extended life concept rather than strait line depreciation.

From what you posted, I am interpreting your problem to be confusion over strait line and extended life. It appears you think no renovation = strait line.

This is not so.

Depreciation is market derived, not mathematically calculated. Therefore, calculation is a measurement against new construction costs. No renovation in one dwelling might result in 25% depreciation while an exact same dwelling with no renovation might result in 75% depreciation.

The judgment involves formulating how long the unit will remain functional.

 

[Don Clark]

Remaining economic life is a judgment or expectation not a product of strict mathematical calculation. The reason is due to variables that are not consistent among comparables. This is why MS uses an extended life concept rather than strait line depreciation.

From what you posted, I am interpreting your problem to be confusion over strait line and extended life. It appears you think no renovation = strait line.

This is not so.

Depreciation is market derived, not mathematically calculated. Therefore, calculation is a measurement against new construction costs. No renovation in one dwelling might result in 25% depreciation while an exact same dwelling with no renovation might result in 75% depreciation.

The judgment involves formulating how long the unit will remain functional.

I use the concept of a CLOCK.

If the MH and it's expected life when completed is 40 years, then you have aq 40 minute clock. For it to have a REL of less than that then one would believe that something has been done(Modernization, Rehabilitation, Upgrading) to push the hands back. The hands of the clock can never be pushed back to 40 minutes but if it say 20 years old and has had extensive rehabilitation, modernization or upgrading then the theoretical hands of the clock may now be at 10 or 15 minutes which would mean that there is now either a REL of 25 or 30 years. If it has been well maintained with adequate maintenance, then that may also contribute to the REL and push back the hands of the theoretical clock.

Just my take on the subject.

 

[mark hurlock]

I use the concept of a CLOCK.

If the MH and it's expected life when completed is 40 years, then you have aq 40 minute clock. For it to have a REL of less than that then one would believe that something has been done(Modernization, Rehabilitation, Upgrading) to push the hands back. The hands of the clock can never be pushed back to 40 minutes but if it say 20 years old and has had extensive rehabilitation, modernization or upgrading then the theoretical hands of the clock may now be at 10 or 15 minutes which would mean that there is now either a REL of 25 or 30 years. If it has been well maintained with adequate maintenance, then that may also contribute to the REL and push back the hands of the theoretical clock.

Just my take on the subject.

Remodeling or updating would certainly “influence my judgment in formulating REL”. however, it is not a mathematical component that leads me directly to strait lining in it's absence.

This is true because effective age is subjective.

 

[Don Clark]

Remodeling or updating would certainly “influence my judgment in formulating REL”. however, it is not a mathematical component that leads me directly to strait lining in it's absence.

This is true because effective age is subjective.

I don't believe that I used strait lining???

Yes, effective age is subjective. It is an opinion, like everything else we do in the appraisal process.