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Obsolescence- What Real Estate Classes Fail to Teach

Many properties can exhibit some form of obsolescence – either functional, external or both. Don’t know what that term means? You’re not alone. Real estate classes often dart past these terms because real life situations that occur nationwide are difficult to cite. Yet as an appraiser I encounter homes with one or more of the following examples every week.

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external obsolescence

Many properties can exhibit some form of obsolescence – either functional, external or both. Don’t know what that it means? You’re not alone. Real estate classes often dart past these terms because real life situations that occur nationwide are difficult to cite. Yet as an appraiser I encounter homes with one or more of the following examples every week.

External Obsolescence

Easier to explain and observe, external obsolescence refers to an undesirable factor outside the property and is generally not curable. This can include:

  • Highways: Unless you’re a NASCAR fan, having traffic buzz past your front yard at 55 mph isn’t the most desirable situation.
  • Power Lines: Not the small feed directly to a home, but rather the high voltage towers that supply an entire town. Even if you don’t believe scientific studies they’re still unsightly.
  • Commercial Buildings: Gas stations, shopping malls, 24 hour pharmacies – generally any business with non-neighborhood traffic.
  • Railroad: Similar to highway traffic but without the NASCAR effect.

Functional Obsolescence

This occurs when the interior of a property suffers from reduced usefulness. It can be cured as long as the cost is less than the added value.

  • Odd Floorplan: I inspected a single family home recently that had no bedrooms and only a half bath above grade. There was a room with a bed but it lacked a closet. That room was only accessible through another den, which in itself was only accessible through the half bathroom. Can you say ‘remodel gone horribly wrong?’ Plus the only shower in the home was in the lower level laundry room, which had a sink but no toilet so it wasn’t considered a bathroom.
  • One Bedroom: A condo in a building where many units have one bedroom doesn’t apply. But a one bedroom single family home in an area where others have 3 or 4 is not typical.
  • One Bathroom: Again, this might be ok for a property with only two bedrooms. However, just imagine the joy of getting ready in the morning when you share the 1 bathroom with 10 people.
  • Poor Design: Many 100+ year old homes have character but often lack amenities of newer construction. Small closets, only 4 kitchen cabinets, the kitchen sink not actually IN the kitchen but around the corner in the laundry room. Unfortunately not only did I see this house – I purchased and lived in it for three years.

While functional obsolescence is a real thing, it can be easily overlooked by someone who doesn’t live in the home. It’s also more difficult to find a similar comparable for an appraisal or market analysis.

Can you think of another example of external or functional obsolescence?

As the son of two music teachers, Ben spent his first 21 years trying to make a living with his slightly above average trumpet playing. After no return calls from Dizzy Gillespie and then a failed attempt at becoming a fly girl on "In Living Color," he switched gears and finally found his nichè in real estate. He's a Minnesota appraiser and also a Realtor with his better half, Stacia. Labeled “one to watch” from an anonymous source (thanks mom), Ben is smart, good looking, athletic and a rock star inside his own head. He also never passes up a chance to write his own bio. Find him online at twitter or selling Stillwater Real Estate.

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17 Comments

17 Comments

  1. Rob McCance

    November 13, 2009 at 3:55 pm

    Good post Ben.

    There are geographically obsolete homes all around Atlanta, mostly west and south of the city.

    The home with a small front yard, and a 4 lane highway in front of it is a classic. Not the home’s fault that the road went from a country route with one unmarked lane barely big enough for two cars, to what it currently is, but unfortunate.

    I like the one with the funky interior. I’ve actually seen a few modern homes with strange things like a large room accessible only through the master bathroom, and it’s not meant to be a closet as there were three of those already.

    Ever seen the upstairs walkway/hallway that terminates into a door, which is actually unfinished attic space? Not good.

  2. Artur Ciesielski

    November 13, 2009 at 5:45 pm

    Sometimes these obsolete items become an asset. I had one client who had to have old steel single pane crank out windows. He passed up many awesome homes because they had new double pane high efficiency windows. But that is an outlier.

  3. Matt Stigliano

    November 13, 2009 at 6:41 pm

    Rob – Here in Texas we call those doors that lead into attic space a “Texas basement.” I laughed the first time I heard it, but here in San Antonio we don’t have traditional basements, so they often build homes with those sorts of entryways to the attic to provide the same type of storage you might get with a basement.

    • Rob McCance

      November 13, 2009 at 7:01 pm

      Ahhhhh, the Texas Basement!

      You Texans have the best sayings.

  4. Greg Barnhouse

    November 13, 2009 at 7:44 pm

    What’s even more strange is to find in these “Texas Basements” that not only are the HVAC units up there, but quite often the water heaters are up there, too! After having lived in Colorado where there are basements and the HVAC and water heaters are down there, where there is concrete and a drain. Instead, here you will find the HVAC units between the roof trusses and water heaters sitting in a drain pan that can get clogged with loose bits of insulation and cause big nasty leaks that cause a lot of damage.

    I guess each region has its own querks. . .

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Austin

Austin tops the list of best places to buy a home

When looking to buy a home, taking the long view is important before making such a huge investment – where are the best places to make that commitment?

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Looking at the bigger picture

(REALUOSO.COM) – Let us first express that although we are completely biased about Texas (we’re headquartered here, I personally grew up here), the data is not – Texas is the best. That’s a scientific fact. There’s a running joke in Austin that if there is a list of “best places to [anything],” we’re on it, and the joke causes eye rolls instead of humility (we’re sore winners and sore losers in this town).

That said, SelfStorage.com dug into the data and determined that the top 12 places to buy a home are currently Texas and North Carolina (and Portland, I guess you’re okay too or whatever).

They examined the nerdiest of numbers from the compound annual growth rate in inflation-adjusted GDP to cost premium, affordability, taxes, job growth, and housing availability.

“Buying a house is a big decision and a big commitment,” the company notes. “Although U.S. home prices have risen in the long term, the last decade has shown that path is sometimes full of twists, turns, dizzying heights and steep, abrupt falls. Today, home prices are stabilizing and increasing in most areas of the U.S.”

Click here to continue reading the list of the 12 best places to buy a home…

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Housing News

Average age of houses on the rise, so is it now better or worse to buy new?

With aging housing in America, are first-time buyers better off buying new or existing homes? The average age of a home is rising, as is the price of new housing, so a shift could be upon us.

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aging housing inventory

The average home age is higher than ever

(REALUOSO.COM) – In a survey from the Department of Housing and Urban Development American Housing Survey (AHS), the median age of homes in the United States was 35 years old. In Texas, homes are a bit younger with the median age between 19 – 29 years. The northeast has the oldest homes, with the median age between 50 – 61 years. In 1985, the median age of a home was only 23 years.

With more houses around 40 years old, the National Association of Realtors asserts that homeowners will have to undertake remodeling and renovation projects before selling unless the home is sold as-is, in which case the buyer will be responsible to update their new residence. Even homeowners who aren’t selling will need to consider remodeling for structural and aesthetic reasons.

Prices of new homes on the rise

Newer homes cost more than they used to. The price differential between new homes and older homes has increased from 10 percent traditionally to around 37 percent in 2014. This is due to rising construction costs, scarcity of lots, and a low inventory of new homes that doesn’t meet the demand.

Click here to continue reading this story…

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Housing News

Are Realtors the real loser in the fight between Zillow Group and Move, Inc.?

The last year has been one of dramatic and rapid change in the real estate tech sector, but Realtors are vulnerable, and we’re worried.

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zillow move

Why Realtors are vulnerable to these rapid changes

(REALUOSO.COM) – Corporate warfare demands headlines in every industry, but in the real estate tech sector, a storm has been brewing for years, which in the last year has come to a head. Zillow Group and Move, Inc. (which is owned by News Corp. and operates ListHub, Realtor.com, TopProducer, and other brands) have been competing for a decade now, and the race has appeared to be an aggressive yet polite boxing match. Last year, the gloves came off, and now, they’ve drawn swords and appear to want blood.

Note: We’ll let you decide which company plays which role in the image above.

So how then, does any of this make Realtors the victims of this sword fight? Let’s get everyone up to speed, and then we’ll discuss.

1. Zillow poaches top talent, Move/NAR sues

It all started last year when the gloves came off – Move’s Chief Strategy Officer (who was also Realtor.com’s President), Errol Samuelson jumped ship and joined Zillow on the same day he phoned in his resignation without notice. He left under questionable circumstances, which has led to a lengthy legal battle (wherein Move and NAR have sued Zillow and Samuelson over allegations of breach of contract, breach of fiduciary duty, and misappropriation of trade secrets), with the most recent motion being for contempt, which a judge granted to Move/NAR after the mysterious “Samuelson Memo” surfaced.

Salt was added to the wound when Move awarded Samuelson’s job to Move veteran, Curt Beardsley, who days after Samuelson left, also defected to Zillow. This too led to a lawsuit, with allegations including breach of contract, violation of corporations code, illegal dumping of stocks, and Move has sought restitution. These charges are extremely serious, but demanded slightly less attention than the ongoing lawsuit against Samuelson.

2. Two major media brands emerge

Last fall, the News Corp. acquisition of Move, Inc. was given the green light by the feds, and this month, Zillow finalized their acquisition of Trulia.

…Click here to continue reading this story…

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