Remaining Economic Life

[alebrewer]

God help us all if it does (or whomever you believe in that monitors the efforts of appraisers). Talk about manipulating values...

 

[sputnam]

Just do it the way it should always be done (yes, I know it's difficult sometimes). Extract it from the market.

 

[alebrewer]

Just do it the way it should always be done (yes, I know it's difficult sometimes). Extract it from the market.

extract what, exactly? The effective age, the TEL, or the depreciation?

 

[Terrel L. Shields]

Where does the appraiser get the effective age?

Here's two views.

 

[sputnam]

All of the above can be extracted from market data. As I indicated, it's not always easy. It can be time consuming. But, it's doable and if you do it that way.. it's bulletproof.

 

[George Hatch]

God help us all if it does (or whomever you believe in that monitors the efforts of appraisers). Talk about manipulating values...

The worst thing that happens is that more appraisers will have to go to more effort to find actual land sales and perform more involved CA analyses than appears on the 1004. The CA isn't going to be altering the outcome of appraisals, not when your most directly comparable land comps and building costs and depreciation rates are subject to the same locational factors as your subject. Same with the IA.

 

[alebrewer]

Here's two views.

Seriously?

Ok - here's an excerpt from the ASA 'guide':

"The appraiser can first start with the chronicle age of the subject property and make comparison between the subject and other residential structures within the market area. Say for example, the subject property has a chronological age of twenty five-(25) years and has had better than average maintenance. The appraiser would make a visual comparison of similar type properties that are similar in actual age, and then to those that may be years younger. The subject may in comparison have equal condition to structures that are ten years-(10) younger. The subject could also reflect an older age."

I see no formula herein, other than 'appraiser judgement', do you? Of course, once TEL is assumed, they're able to calculate the effective age.

The excerpt from the JofRE - which is actually a pretty good article, is marginally better for a number of reasons. I LOVE the log approach to depreciation - that makes much more sense in the real world. Regarding the actual calculation, however, they are basically using the reciprocal of the depreciation per year - which I've already stated is one methodology for estimating TEL. It only works, however, in very limited situations. Their example worked out swimmingly. What if, however, the actual age in the example was 49 years instead of 19 years? Doesn't work out so well then...

I will say, however, that the only mathematical calculation I've found for estimating TEL is very similar to the one presented in the JofRE - and which can provide strong support for the TEL IF the numbers make sense.

 

[alebrewer]

The worst thing that happens is that more appraisers will have to go to more effort to find actual land sales and perform more involved CA analyses than appears on the 1004. The CA isn't going to be altering the outcome of appraisals, not when your most directly comparable land comps and building costs and depreciation rates are subject to the same locational factors as your subject. Same with the IA.

Nah. All you have to do is extract the value of the home via the SCA, then use a TEL, depreciation, and RCN that matches up to the SCA and viola! You've got a very supportable CA. Of course you always have the contributory value of site improvements that you can manipulate, should you need to fine tune the value just a bit one way or the other.

 

[alebrewer]

All of the above can be extracted from market data. As I indicated, it's not always easy. It can be time consuming. But, it's doable and if you do it that way.. it's bulletproof.

Right...

 

[Terrel L. Shields]

see no formula herein, other than 'appraiser judgement', do you?

If appraising was a formula, then who needs us? TEL is an estimate, of course. After all, a new freeway proposed radically alters the TEL and isn't predictable. But observation often confirms the simple fact a house lasts about so long before it needs updated. I've been in business long enough to see a number of the early poultry farms in the area that I appraised that were new or nearly new in 1992 that are now long gone. Some taken down, some simply left vacant. And a few of them have been repurposed - usually for organic egg production. So is my estimate of the TEL of a poultry barn 25 years off by much? I stand by it. The equipment will cycle quicker but the barns are basically all gone from their original cross-ventilation, steel truss, curtain wall construction to larger solid wall, wood scissor truss construction.

The cost books tend to show total life charts that are based upon observation. And TEL is a construct, not a given. As repairs are made and updates are created, the TEL slides further into the future. An appraiser who is myopic and clueless perhaps can't understand the concept but the rest of us can and do apply it by the book. It is part of that systematic uniformity of application methodology that provides reproducible results .