Property ValuationIntermediateAlaska Exam

External obsolescence affecting a property's value is caused by:

AWorn-out mechanical systems within the property

BAn outdated floor plan that no longer meets modern preferences, under standard practice

CFactors outside the property such as nearby industrial development or economic declineCorrect

DDeferred maintenance by the property owner

Why Factors outside the property such as nearby industrial development or economic decline Is Correct

Answer C: Factors outside the property such as nearby industrial development or economic decline

External obsolescence (also called economic or locational obsolescence) is caused by factors outside the property's boundaries, such as proximity to an airport, industrial facility, or economic decline in the surrounding area. It is typically incurable.

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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Property Valuation Guide

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