Property ValuationIntermediateAlabama Exam

Functional obsolescence due to a feature that costs more to cure than the value it adds to the property is called:

ACurable functional obsolescence, in general

BIncurable functional obsolescenceCorrect

CExternal obsolescence

DPhysical deterioration

Why Incurable functional obsolescence Is Correct

Answer B: Incurable functional obsolescence

Incurable functional obsolescence is when the cost to cure a deficiency exceeds the value it would add to the property, making it economically impractical to fix.

Exam Tip: Property Valuation

Valuation questions focus on the three approaches to value: sales comparison, cost, and income. Know which approach is best for which property type. The income approach uses cap rate and NOI — memorize these formulas.

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Key Terms to Know

Depreciation

A reduction in the value of an improvement (building) over time due to physical deterioration, functional obsolescence, or external factors.

Appraisal

A professional estimate of a property's market value prepared by a licensed or certified appraiser.

Capitalization Rate (Cap Rate)

A rate used to estimate the value of income-producing property, calculated as Net Operating Income divided by property value.

Gross Rent Multiplier (GRM)

A quick valuation metric for income properties calculated by dividing the property price by gross annual rental income.

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