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 gmakerley
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Posted: Fri Apr 01, 2011 11:40 am Post subject: Questioning adjustments for effective age
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Appraisal mavens, please let me know your thoughts:
I'm not originating any more, and currently not underwriting, but working as a consultant with a credit union. Also, I believe that the adage "less is more" will often fit an appraisal report.
I've been seeing a lot of reports that show both actual and effective age on subject and comparables, but they're not particularly sensible to me. For example, I have actually seen a 2-year old house with a 1-year old effective age from an appraiser.
More commonly, I've seen 9 actual/6 effective; 15 actual/12 effective and so on.
I want to be sure I'm not being too critical when I suggest that the difference between a 9 year old home and a 6 year old home isn't usually so significant that there'd need to be any "effective" age shown to begin with. In fact, most of the reports I've seen these occurrences in don't make any adjustments, so why bother?
Is there something in "the code" that would compel an appraiser to come up with this sort of artifice? In most of the cases I've seen, there is no adjustment made, simply the reference to actual and effective.
The people working here are unsophisticated in their review of appraisals, so they wouldn't think to ask these questions. Trying to help them out here, I'd like to get your expert opinions to find out if I'm hypercritical in looking at this the way I do.
Please, appraisal experts, respond at your convenience.
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George M. Akerley
Mortgage Underwriter/Consultant
Word of Excellence- Writing/Editing/Proofreading
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apexoffice
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Posted: Fri Apr 01, 2011 12:55 pm Post subject:
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Effective age is really objective in that it is often based on opinion of overall condition. For example, a 2 year old house with nothing done to it since being built should have an effective age of 2 years. But what if the same house has had some immediate updates by the new owners such as changing the floor coverings or upgrading to a tankless water heater? It is reasonable to consider that the improvements have reduced the effective age of the dwelling, even if marginally.
Usually in these situations, there is still very little if any adjustment. It really becomes an issue for adjustment when the properties become 15-20 years old. Around this time, the appliances are being replaced, the roof is being replaced, water heaters, kitchen and bath renovations, and so on. Now let’s say you have a house that is 20 years old and had some significant improvements completed 3 years ago, compared to a 30 year old house with similar improvements at the same time. In my opinion these could have similar effective ages and you could argue that no adjustment needs to be made. However, if you are comparing it to a 20 year old house that has no recent updates and in need of repairs, the adjustment might be substantial.
Keep in mind the primary objective of an adjustment is to describe the market reaction. There is no hard and fast rule that says you must adjust for every year difference. If the houses are selling for the same price regardless of a few years difference in age, or rather differences in effective age, then no adjustment is warranted.
Now, to answer your question, George. I personally don’t include the effective age on all of my comparables if they are relatively similar and no adjustments are needed, unless there is a large difference in actual age such as a 20 year old house and 40 year old house with similar effective ages. But I can see the reasoning for some appraisers to add it just to show the opinion of overall condition and the amount and impact of any renovations. Any adjustments, or lack thereof, are based on observations in the marketplace.
I hope this helps a little.
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Benjamin Smith
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gmakerley
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Joined: 09 Nov 2007
Posts: 12376
Location: bloomfield, ct
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apexoffice
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Joined: 09 Jul 2008
Posts: 193
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56.04 Dollars($)
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gmakerley
Community Mentor
Joined: 09 Nov 2007
Posts: 12376
Location: bloomfield, ct
58.49 Dollars($)
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