Posted on: 01st Apr, 2011 11:40 am
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.
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.
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 lets 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 dont 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.
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 lets 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 dont 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.
What you describe, Ben, is far more what I expect to see. In my book, there's little sense in telling me a 3-year old house is effectively 2 years old, and so on. I agree with you, of course, that an older home that's had substantial improvements (say 30A/15E) makes a great deal of sense in determining values.
I'd like to review your appraisals, I think; you make the kind of sense I'd like to see in some of the work I've seen here.
Thanks!
I'd like to review your appraisals, I think; you make the kind of sense I'd like to see in some of the work I've seen here.
Thanks!
Well George, if you haven't already, chances are that you will never get to see one of my reports. I am shutting the doors on my business this year and going to law school. Maybe I can help you when consumers begin filing law suits against mortgage consultants. it's only a matter of time right? :wink:
Congratulations on that career move, Ben. Based on what I've seen from your posts here, I think you'll be a good lawyer - no matter what specialty you may undertake. Simply bring the sensibility that you've displayed as an appraiser to law and a successful career will be around the corner.
Bon chance!
Bon chance!