First of all, what you need to know to understand effective age is its difference from chronological age, which you might have already heard of before.
To take this into perspective, consider a restored 1967 Corvette Stingray, which can run like it’s fresh off the showroom. It might be an old model, but with just a few modifications and repairs, it can still work at par with other modern cars. So what about in real estate terms? A house built in the mid-1900s can be remodelled to have similar enhancements as one built within the past couple of years.
With these examples, it is quite clear what effective age alludes to. Basically, it simply states the current physical condition and functional efficacy of an object or property such as a house or a car. On the other hand, chronological age states the exact age of an item, particularly from when it is made to the present day.
Therefore, effective age can vary actually. For example, a neglected property will surely rise in effective age regardless of its chronological age. In fact, according to the American Society of Appraisers, effective age may change every year or stay the same through time.
Finding properties with effective age
When choosing similar properties for appraisal, effective age should be taken into consideration. Although, two homes could have been built years apart, renovations to a decades-old house could make it appear as aesthetically pleasing and efficient as a newer house. Therefore, appraisers could simply choose an updated home from the 1950s as a comp for a newly constructed home from a recent decade.
Also, take note of how the local market influences the effective age of real properties. In the event that most homes in an area have a higher chronological and effective age against the house to be evaluated, the appraisal value will be different in relation to an older yet redesigned property in a community with a multiple new developments.