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Sinkhole house external obsolescence Florida.

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Chris Langee - Investor / Real Estate Broker (813) 545-5263

Sinkhole house and external obsolescence in Florida.

Can a sinkhole next door to my house affect the value of my house? Yes it can. This is one example of external obsolescence. Others examples would be a house next to railroad tracks or a sewage treatment plant. If the house next door was to fall into a sinkhole. It would negatively affect the value it hour house. Below is a more in in depth discussion of external obsolescence.

External Obsolescence.

External Obsolescence, the diminished utility of a structure due to a negative influences emanating from outside the building, is usually incurable on the part of the owner, landlord, or tenant. External obsolescence can be caused by a variety of factors - e.g. neighborhood decline; the property's location in a community, state, or region; or local market conditions. Any estimate of external obsolescence must be based on a thorough neighborhood analysis.

External influences can cause any property to lose value. In the cost approach the total loss in values due to external obsolescence is allocated to the improvements. Therefore, an an appraiser must first estimate the income attributed to the improvement. then the income imputable to the improvements is capitalized at the building capitalization rate to estimate external obsolescence.

Two methods can be used to measure external obsolescence. The appraiser should select the procedure that is best supported by market evidence. The appraiser can either 1) capitalize the income or rent loss attributable to the negative influences, or 2) compare sales of similar properties that are subject to the negative influences with others that are not. If pertinent sales data are abundant, the second procedure is preferred. However, an appraiser may encounter significant practical problems in attempting to account for other differences between the subject property and the comparable properties. Care should be exercised when this method is used.

To estimate external obsolescence by capitalizing the resulting loss in property income, the appraiser first estimates the income loss to the entire property that is attributable to external forces. The the loss in income attributable to the improvements is capitalized at the building capitalization rate.

Appraisers can often find market data to help brake down an overall capitalization rete (Ro) into a building capitalization rate (Rb) and land (or site) capitalization rete (Rl). It is much more difficult to find an income or rent multiplier that reflects the proportions of building and site.

When net operating income and appropriate capitalization rates are used, the net income loss imputable to the building can be capitalized at the building capitalization rate. The resulting figure is an estimate of depreciation due to external obsolescence.

Appraisers should recognize that conditions in temporarily depress markets may dictate measuring external obsolescence by discounting the net income loss for the time frame over which the negative externality is expected to exist rather than by capitalizing the loss, which would assume the condition is permanent.

The appraiser may capitalize the remaining income at the market-derived land or site capitalization rate to derive an indication of the loss in value attributable to the site. If this percentage of the loss in site value approximates the adjustment that was made for location in the sales comparison analysis of site value, the appraiser can have greater confidence in both the location adjustment and the estimate of external obsolescence attributed to the building in the cost approach.

The Florida legislature and Governor Rick Scott have changed the sinkhole laws due to the insistence of Florida Insurance companies. This article was written before the changes were made. If you have a new sinkhole problem you may be out of luck. Contact your insurance company to see if you have sinkhole coverage. We continue to buy unrepaired sinkhole homes in Florida.

Sinkhole house external obsolescence Florida Buy Sell Sinkhole Houses.

Sell us your unrepaired sinkhole house.

We buy sinkhole houses in Florida.

Chris Langee - Investor / Real Estate Broker (813) 545-5263

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