Obsolescence can be a challenging concept, not to mention a difficult word to spell.  We all know that it exists; however, identifying and quantifying it can be difficult.  Maybe we make it more difficult than it has to be.

Recently my son and his friend got a little mixed up on their directions while walking in Chicago.  Unfortunately, they ended up in the wrong place at the wrong time and were mugged by four teens.  Now in no way do I mean to make light of that situation – it was frightening for him and disturbing for me as his father.  Fortunately, they were unharmed….. and came out just a little lighter on the cash side.

One humorous aspect of the incident was when the muggers asked for his cell phone.  He recently lost his nice phone and has been using an old flip phone that we had lying around.  One look at it and the hoodlums laughed.  They told him he could just keep it.  It’s pretty bad when you have an asset that isn’t even worth stealing.  Sometimes you just know obsolescence when you see it!

What equipment might you have that wouldn’t pass the mugger’s litmus test?

Who has gotten a really ugly sweater for Christmas?  A hideous wall hanging?  Re-gifted fruit cake?  Pants that were too big…. Or worse, too small?  Or maybe it was that “whatamacallit” that you simply couldn’t see yourself ever using?  According to my intensive research on Cha Cha and Yahoo! Answers, it appears that somewhere between 21-40% of us will be returning Christmas gifts this year. Wouldn’t it be nice if we could get it right in the first place?  No ugly gifts…..no duplicate gifts…..clothes that fit perfectly? 

There is lots of talk about the large number of property tax appeals being processed from coast to coast.  Property values have plummeted in the past couple of years and assessments have not followed suit.  Because of this, many jurisdictions are anticipating the largest year ever in numbers of property tax appeals.  Illinois is looking at numbers that have doubled in the past 7 years.  New Jersey has almost quadrupled the number of property tax appeals since 2007.  Los Angeles HAS quadrupled since 2007.  Las Vegas has quadrupled since 2008.  Michigan has an appeal backlog that is 8 times larger than 10 years ago.

There are few exceptions to this trend.  Miami (Dade County), one of the exceptions to the trend, is expecting a 27% decline in appeals from their high in 2009.  This makes me wonder if they’re doing a better job shopping in the first place….  Less ugly sweaters results in less returned Christmas gifts.

Cyber Monday, the Monday after Thanksgiving, made its debut in 2005. Since that time it has grown significantly, with an estimated crowd of over 100 million people shopping online on Cyber Monday. I was not one of them. Not that I have anything against online shopping (in fact, that’s how I do most of my Christmas shopping), I just didn’t have the time. One thing I am against, however, is excessive "handling" charges. What exactly is a "handling" charge anyway? You find a great deal on an item when shopping online... excitement! But if you aren’t paying attention the final price is significantly higher because of the "handling" charge...disappointment! Recently I almost bought a $40 item that would have become $60 because of the $20 "handling" charge. Needless to say, I did not press the purchase button.

Determining the value of complex, special purpose facilities can present a formidable challenge to appraisers. Because special purpose facilities may be one-of-a-kind, there is often no option of comparison to other facilities for market value determination. For this reason, the cost approach has been the historic standard for the appraisal of complex properties. Unfortunately, because the cost approach does not always consider all forms of obsolescence, it often leads to inflated estimates of fair market value.

The first step in the cost approach is to determine the Replacement Cost New (RCN) for the facility. When performing a cost approach appraisal, you must keep changing technology in mind. The natural evolution of technological process and improvements in materials over time often renders yesterday’s technology obsolete in terms of capital costs. This concept figures how much it would cost to replace the current facility with one that duplicates the utility of the existing facility using current technology and materials at current prices.

Once RCN is calculated, the next step is to quantify depreciation. Depreciation is defined as the loss in value from all causes, and its estimation is one of the most subjective areas of the cost approach. All there forms of depreciation should be taken into account: physical deterioration, functional obsolescence, and external obsolescence. Under the appraisal principle of substitution, an informed and willing buyer would pay no more for a facility than the cost to build or acquire a facility with equal utility.