Issue link: https://read.dmtmag.com/i/420183
DECEMBER 2014 24 THE JOURNAL Ask Eddie BY ED HICKS DEVELOPMENT MARKETING It seems as if one of the most difficult is- sues I have to deal with when selling manu- factured homes with prospective buyers is the dreaded word "depreciation". How can I best handle it? Tom W., Painted Post, NY You are right Tom. Sometimes prospective buyers come out and ask about "it", and some- times they don't, but rest assured, it is almost always in the back of their mind. Historically, it may have all started with those who remember the "long, long trailers" of Desi and Lucy, which were an outgrowth of earlier covered wagons. Over time they had grown into smaller towed camping vehicles. The first real growth of the industry started dur- ing WWII when airplane assemblers started building housing structures out of fuselage parts and setting them up in the parking lots near the factories to provide "affordable" housing. There were no building codes or standards for electric services were non-existent. Plumbing was usually provided for nearby their siting. They were built as inexpensively as they could be, which meant the use of very light aircraft construction materials. In time, normal dete- rioration if the structure occurred through nor- mal use. Used units were sold at a discount and many were transferred into "trailer camps". State motor vehicle departments, which li- censed them for transport behind an automo- bile, because of their relatively lightweight, often deteriorated with use. In most states li- censing fees were ultimately based on resale val- ues, and so the bureaucrats established "depreciation" schedules which somewhat matched those of automobiles. But that has nothing to do with the reality. I note a recent report by a local real estate broker as an "expert" who was interviewed on TV here in Central Florida, said about a ques- tion posed to her: "whether or not the purchase of a mobile home is a sound investment" Her response . . . "The first and most im- portant thing you should know about investing in mobile homes is that their value works more like that of a vehicle than that of a home. While a standard home" (who is to say what is standard and what is not) "will gain in value and equity over time" (is she aware of markets where site built homes are being abandoned in relatively large numbers where the value is less than the encumbrances: un- derwater homes) "a mobile home's value will depreciate with age, as it is made out of metal that will rust" (no manufactured built after June 1976 I know of are built of exterior materials which rust) "rather than brick that will withstand all weathers". Yup, she really said that! Well, I am not surprised, many people still do have a mistaken notion about what the com- ponents of depreciation in a home whether on real property as an improvement are, and are not. It's all about ignorance, and prejudice. All appraisers, and most knowledgeable real estate licensees know site built rental homes are de- preciated over 27.5 years after deducting the value of the homesite itself. Proof enough? It can be easily shown that many manufac- tured homes in most locations within the USA have values, which have increased significantly over time. Many of these are on leased home- sites. Appreciation sometimes occurs at a rate faster than that of near by site built homes. In fact, way back in 1974 wrote an article which was published in the REALTOR magazine by the California Association or Realtors about the subject way back in the late 70's when I was a member of the association. I documented home values for site built and manufactured homes in communities, which were side by side. Over the years I have followed the resale prices of manufactured homes I sold along with modular housing from one of my sales locations in Southern California. An example of such a community is Rancho Goleta, and Rancho Santa Barbara located just north of Santa Bar- bara. In the 60's and 70's my sales staff and I sold about 50 homes a year, many of which were installed in these communities which were owned at one time by the late Fess Parker. As I recall, my original sales prices ranged from $65,000 to $85,000 rarely any higher; all on leased homesites. Of course, the homes were some of the higher quality homes being sold in the market place at the time. I just checked re- sale prices (November 2014) and they are now reselling at prices from $350,000 to $450,000 and higher. Is this unusual? Not at all. There are many other land lease communities all across Amer- ica for which this is the same. To name a few: Swan Lake, in Florida, Kolshe-ilahee, in Washington State, Buckingham Springs, in Pennsylvania, and many, many more. I guess the point is: the valuation of a man- ufactured home depends as much on the loca- tion and siting, as site built homes, and do not automatically depreciate with age. In fact, today my wife of 34 years and I live in a HUD code manufactured home on a con- dominium platted homesite in Central Florida. Although new site built homes in my market area are selling at prices with the homesites starting at $240,000 and up, my new home cost me only $127,900. Its a 2/2 home with 1,300 sq.ft., and 9' ceilings, for which I defy anyone to tell me where the differences in features and con- struction are different from site built homes in my area. \ 25