Ask Henry
12/19/10 Categories: Ask Henry
Estimated Economic Life
Hello Henry,
It appears that some lenders are requiring an estimated economic life on all appraisal reports (even for 1073 form reports on Condos). I understand that banks are using this to determine if the life of the loan exceeds the economic life of the subject. The problem is that economic life is dependent on the owner's maintenance. If, say, a new owner doesn't have the funds and/or knowledge to repair a roof leak or get rid of termites, the economic life could easily go from 50 years to five years. Conversely, a well maintained building can last hundreds of years. How is the appraiser supposed to determine the owner's level of future maintenance? I could not find any reference to estimated economic life in USPAP.
Hello Henry,
It appears that some lenders are requiring an estimated economic life on all appraisal reports (even for 1073 form reports on Condos). I understand that banks are using this to determine if the life of the loan exceeds the economic life of the subject. The problem is that economic life is dependent on the owner's maintenance. If, say, a new owner doesn't have the funds and/or knowledge to repair a roof leak or get rid of termites, the economic life could easily go from 50 years to five years. Conversely, a well maintained building can last hundreds of years. How is the appraiser supposed to determine the owner's level of future maintenance? I could not find any reference to estimated economic life in USPAP.
Ken Janke
kenjanke09@gmail.com
Dear Ken,
I think you should make it clear in your definition of estimated economic life that it includes the assumption that the property will receive normal care and maintenance.