There are so many factors to consider when valuing a property. Anyone who works in real estate knows this. So how do we account for a difference in age between comps? Does age matter? Should we make any value adjustments? Someone asked me this recently, so I figured it was worth kicking around the issue together. I’d love to hear your take in the comments below.
Question: How do appraisers account for a difference in year built? Do appraisers give an adjustment when to comps there is an age difference?
Answer: Here’s my take. Most of the time buyers tend to buy based on condition instead of age. Thus if there is a difference of a few years or so within a subdivision, it might not have any impact on value as long as the condition is similar. For instance, in some tracts we see an age range of 1977 to 1983. If one house was built in 1977 and another in 1983, and they are in the same condition, it’s unlikely to see the 1983 home command a value premium unless for some reason it has a higher quality or if it is located on a stronger street. Sometimes buyers are actually not even aware of the age of the home. They’re really just looking at the neighborhood and buying what is there. Do you agree?
My $500 Adjustment: I’ll admit when I first began appraising I used to adjust $500 per year on all comps in every appraisal because that’s what I was taught to do. In very technical terms, this valuation methodology is…. bogus. After all, a $500 adjustment per year certainly doesn’t apply to every neighborhood, every market, or every property type. These days though I rarely make any adjustment for year built since most of the time I’m looking at condition instead. However, if the age gap is too large, there may be a difference in value, and we we have to begin asking if we should even be comparing the homes in the first place. For instance, is 1977 vs. 1990 a good comparison? What about 1990 vs. 2003? Maybe not because we might be dealing with a different quality of construction, different tracts, or different markets. But at the same time, we might see homes in one area were built in 1955 and another nearby area has homes built in 1972. If there is no price difference observed between both areas, then the homes may easily be competitive despite their age gap. The thing we need to do though when valuing a 1955 home is to be sure to find 1955 sales instead of just 1972 sales (this helps prove the market really does pay the same amount for both ages).
Subjective Mush: I know this begins to sound very subjective, but there is no rule out there when an adjustment is needed other than when buyers at large have clearly paid more or less because of a feature. In reality it can be tempting to make value adjustments for every single distinction, but sometimes it’s best to not force adjustments by remembering the market isn’t so sensitive as to warrant a price reaction for every single difference. However, a good rule of thumb when searching for comps is to take an “apples to apples” approach. This means we start by searching for similar-sized homes with a similar age rather than choosing newer or older sales that really might not be competitive. I know this sounds basic, but when we keep the fundamentals in mind, it keeps us sharp (right?).
Brand New Homes: As I mentioned recently, we do need to be careful about comparing brand new homes with ones that are even a year or two old because brand new homes tend to sell at a price premium. This means despite only 1-2 years difference in age, we might see a pretty big difference in value.
I hope this was helpful.
Questions: Anything else you’d add? When do you think age does matter to buyers? Any stories or examples?
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About the only time I make an age adjustment for most Los Angeles markets is when it will narrow the range of adjusted values significantly. Most of the time ‘effective age’ is more relevant in my market. That said, there are some east coast markets where building style is tied to age and there is a definite value distinction but in the opposite direction you would assume is correct! I am sure Sacramento has several historic districts where something similar might apply.
Good stuff, Mike. “Most of the time ‘effective age’ is more relevant in my market.” I agree with this, and that is exactly what I mean by buyers tending to pay more attention to condition than age.
I fully agree. It should be on condition. Not age. Especially if the comparison compares to newer homes. Thanks Gary
Thanks Gary.
I agree Ryan. I almost never make age adjustments, just condition, unless the subject is in a newer development where there is little difference in condition except for age. In these cases, I can usually extract an age adjustment using regression.
Thanks Gary. I’m with you about making age adjustments. I just don’t tend to make them. I find having an informed understanding for how to look at age/condition in a market is key for the real estate community. I hope this post helps any onlookers as we think through how to approach properties – even in the most basic ways.
Good post Ryan. Even “new” homes are tricky as while they often have premiums, it is also a “depends”. Often when a new home is standing inventory there is no premium as the buyer’s cannot pick their options. So is it truly an age thing or the fact the buyer’s get to chose finish options? For the majority of the new homes I do I see the “new home premium” diminish or go away for standing inventory.
For anyone looking for a clear rule, or answer they are missing out on what we are trained to do and need to do on each and every appraisal. Read the market, how is it reacting and why. Talk to the agents on both sides and hear what they are hearing from the buyers and sellers. Confirming data from an online data source is not sufficient, we need to talk to the players and do our best to understand what the “typical” buyer/seller is thinking. Not the specific buyer, but the typical buyer and therein lies the time it takes to do a well supported report.
Thank you Ryan for shedding light on some important issues.
Well said Cynthia. I appreciate the comment. You’re very right that making adjustments is about what the market is willing to pay rather than what one buyer is willing to pay. There will always be one buyer who will pay more or less for whatever reason. What would most pay? That takes skill and research to discover.
Great points Ryan. I think sometimes we as appraisers tend to make adjustments that may not even be warranted because the market is not that sensitive. I believe this is the case for differences in age like you describe. I wish we were able to measure things so accurately but I’m not sure we can.
Yep. Well said, Tom. Thank you.
I see age as a more of home era’s. Homes built in the 1920’s do vary from those built in the 1950’s. Those built in the 50’s vary from those built in the 80’s, etc, etc based on market appeal, code requirements from the period. I rarely adjust for age unless forced to use homes from a different era than that of the subject. I am glad that Ryan has brought this up. I see some of these effective age adjustments and question the reliability. Adjustments for quality/condition seem more appropriate to me as well.
I like your thinking Mark with age and eras. This is why 1950s homes in some of the classic areas of Sacramento just don’t seem to compete with the 1920s homes. The homes in the 20s seem to have more charm and craftsmanship, while the 50s homes have a far lesser quality. I think your point on code requirements and market appeal is critical too. Thank you.
Thanks Ryan for the great post. Good comments too that are very helpful!
You’re so welcome, DeeDee. Thank you. I’m with you on the comments adding value here. Lately the comments have been off the charts tremendous.
Ryan – spot-on! I have worked with a number of newer appraisers that think an adjustment is needed for every little difference. It’s difficult for them to understand that sometimes the market is not sensive to every little detail. I also agree, that in most markets “condition” trumps “age” ( new construction – is a different story, however.)
Thanks so much Tom. Well said. I agree about new construction. This whole conversation underscores the need for good training for appraisers and the entire real estate community. But even if there is good training at first, we have to always keep our eyes open since markets are constantly evolving. There is always something to learn about how value works, and that’s the fun part. I appreciate your comment.
Great article Ryan. As an appraiser, when I read the title my first thought was, “I very rarely make age adjustments”. Which was echoed by your thoughts. In my market, and especially along the coast, it seems to that location is where the adjustment falls more often. Dana Point has older homes in a community with beach access that are about 1.5x the price of the newer homes in the subdivision adjacent, but inland from the older homes. Same is true of Newport Beach and Laguna Beach. Location, location, location.
Good stuff, Mark. Thanks for sharing your take. It’s easy to think newer is more valuable, but older homes probably have the best locations, and we know location is THE x-factor for value. I actually grew up in SoCal (but more inland), though My Dad lived in about all the beach cities you mentioned here at one point or another. So as a kid I spent every other weekend in Dana Point, San Juan, San Clemente, etc…. Thanks again.
Like you guys, I was making age adjustments only based on effective age. Of course, it takes some digging to get an accurate gauge of the effective ages of the comparables, but I felt comfortable doing this.
Then I started thinking more in terms of the life expectancy of the components, roof, hvac, electrical. plumbing, appliances. Also I started thinking about the age/life method of calculating depreciation in the cost approach.
I’ve come to the conclusion that not making adjustments for differences in age is short-changing the younger properties where the components have a much longer remaining life.
Please note, I am speaking mainly of the homes in the 2-15 year age range. Older properties, 30-50 years old it makes much more sense to adjust based on effective age.
Thanks Greg. I appreciate your take. Your comment reminds us too that there is no one way to appraise. You make an adjustment for age, but I would probably look at this and consider it a condition issue. We definitely don’t want to short-change the property as you said. Thanks so much.
We are getting ready for an appraisal to do an addition to our 1860 brick home. I just noticed that the appraisal when we bought the home cited the home with a 1901 build year (date our county’s record system began).
Is it beneficial or detrimental for me to let the new appraiser know it was built in 1860? i.e. should I keep my mouth shut?
Effective age was listed as 20y
Hi Sam. Thanks for the comment. I guess the first thing I’m wondering is why the appraisal said 1901 if the age is really 1860. If that’s what it says in Tax Records though, then I completely get it. I would wonder if all the other pre-1901 sales in your market say the same thing in Tax Records too. It’s hard to say if it’s beneficial or not to let the appraiser know about the year built, though I certainly wouldn’t advocate hiding information. I suppose if you see a value premium for properties built around 1860, then it’s probably a good move to let the appraiser know Tax Records is incorrect. Keep in mind in many areas buyers of older homes are probably not buying based on age so much though, which means the age difference might mean very little. Obviously I don’t know your market, so that’s only a generalization. Buyers of older homes generally are buying based on era charm, architecture, and condition. If the effective age is closer to 20, obviously the property has been well maintained and will theoretically be compared to other older homes in similar condition. I don’t know your market, so it’s hard to give specific advice (obviously). Whatever you do, I recommend you focus on communicating with the appraiser about upgrades, condition, location, and other relevant information. See this post for some ideas as well as an “info sheet” you can download, fill out, and give to the appraiser. Best wishes. https://sacramentoappraisalblog.com/2014/11/18/a-cheat-sheet-of-information-to-provide-to-the-appraiser-during-a-refinance/
Hello! We just paid for an appraisal on a prospective property. The report listed the property in error as being built in 1960. It was, however, built in 2007. This is a rural market and the comp homes(which are few and far between) were also 40-50 years older than the home we hope to purchase. Is it likely that the appraisal have to be re evaluated and adjusted for such a discrepancy?
Also, today…the home next door which was built the same year and would be the most accurate comp in this rural market…was just listed as I received the report on this home that was evaluated last week. Should they add this new home? Or is this just a matter of missed timing?
Hi Sheryl. It’s hard to say why that error exists without knowing more information. If the home was really built in 2007, it would seem prudent to use some newer sales as comps if those types of sales exist. If they don’t exist, then at the least the appraiser can explain that in the report and find a way to deal with the newness in the value. Hopefully it was just a clerical error on the part of the appraiser to list the home as being built in 1960 if it was indeed built in 2007. If it was a clerical error, then the appraiser has likely already considered the age difference in the value. If the appraiser had misinformation or compared a new home with old ones, then maybe the appraiser needs to revisit the value (if he/she has not considered the difference in age already). I think this is probably a good question for the lender to ask the appraiser to explain. Or maybe the appraiser has explained it already in the addendum in the report somewhere? I would definitely get clarification on the matter though.
If the home next door just listed for sale, that isn’t going to impact the appraisal. If it was listed for sale on the date of value or before, then maybe the appraiser would’ve inserted this listing in the report since lenders tend to want to see at least 3 sales and 1-2 listings. Though since it listed after the date of value, the appraiser won’t use it in the report at all. On top of that, it’s not really too relevant yet unless it actually sells (and sells at a reasonable level too). After all, a property can be listed for any amount. Whether that amount is close to value or not is to be seen.
I hope that makes sense.
Good morning. We live in the Indianapolis, IN market and I have a question related to this. Our home was built by CP Morgan back in 2008. There are homes in our subdivision that were built in 2013 by Ryan Homes, in a new section that I am being told by realtors are valued at $20K more than mine strictly because of the age of the home and builder. Do appraisers even consider builders when doing appraisals and $4K a year seems pretty steep for an age variance. Am I missing something or is the realtor just blowing smoke? Thanks
Hi Matthew. Thanks for reaching out. The builder can definitely matter for value, though it’s not always a real issue that changes value. I do see some builders in my market command higher prices for sure, though it’s really more about the quality of the home rather than the builder name in my mind.
The reality is the proof of value is found in the market, so if we compare homes by CP Morgan and Ryan Homes over time, is there a price difference? That’s the real key here. Keep in mind it could be more about location too. Better park? Better elementary school? Lower property taxes? Or newer upgrades? Better layout?
My gut instinct when hearing about situations like this is to think value is about something else instead of just an age difference. I could be wrong. Like I said though, the proof of value is found in the market, so let’s look to the comps for the answer. Just be careful about using Ryan Homes comps if there is a price premium. As an appraiser I want to see CP Morgan comps most of all. This is important because if I’m just using Ryan Homes comps, I haven’t really proved what CP Morgan homes are worth, right?
Best wishes.
What if CP Morgan is no longer in business? They went under during the mortgage crisis in 2009. Also, the only two CP Morgan homes sold in our subdivision in the last 3 years were both foreclosures. There is one that just went pending, but I looked at it and it has water damage and was being sold as is. The other 6 homes in our subdivision that have either sold or gone pending were from Ryan and range between $265K-$303K. They are newer, but all are much smaller than what I have. The average is 2500 sq ft, where I have 3500 sq ft. The market here is extremely strong. I would say the average price per sq ft is around $90. Now, I know, I am not going to get anywhere near that, with 3500 sq ft. Just trying to get some insight on what I need to do to sell my property.
This is where a local expert has to parse data. Unfortunately there aren’t many recent sales in the past few years, but there might be others prior to that. An appraiser or real estate professional will basically have 6 or so years of data to compare your subdivision with the other one. Hopefully when doing that it will become clear which location the market favors (if any). If the last couple sales are distressed, then you’re right those might not be adequate. But we might have adequate data prior to that.
Our home was built in 1901. Nice well kept home. How would this homes age effect appraisal?
Hi Don. I don’t know that the age of your home has any specific meaning for value other than the appraiser considering the current condition, maybe being cautious to look at certain elements (such as whether it still has knob and tube, for instance), and most of all looking to the comps. If the appraiser is using other similar-aged homes that are currently in about the same condition, then that’s where we see value. There are homes this old in my market and I simply compare them to other homes of similar age and current condition. Though I am aware of settlement because the homes are old. I naturally expect there to be some floors that aren’t exactly level.