Property Valuation
Which principle of value explains why a home across from a noisy industrial facility will sell for less than an identical home in a quiet residential area?
AProgression
BRegression
CExternal obsolescence✓ Correct
DConformity
Explanation
External obsolescence (also called economic or locational obsolescence) explains the loss in value due to negative external factors — in this case, the noise and industrial character of the adjacent land use. The negative external influence reduces the property's market value.
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Key Terms to Know
Net Operating Income (NOI)
The annual income generated by an income-producing property after subtracting operating expenses, but before debt service.
DepreciationA reduction in the value of an improvement (building) over time due to physical deterioration, functional obsolescence, or external factors.
AppraisalA professional estimate of a property's market value prepared by a licensed or certified appraiser.
Comparable Sales (Comps)Recently sold properties similar in size, condition, and location used by appraisers and agents to estimate a property's market value.
Math Concepts
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