Property ValuationIntermediateArizona Exam

A property with 'functional obsolescence' due to having only 1 bathroom in a 5-bedroom home represents:

ACurable functional obsolescence if adding a bathroom costs less than the value it addsCorrect

BIncurable physical deterioration, since inadequate structural design cannot be economically corrected

CExternal obsolescence from market factors, such as neighboring properties with more bathrooms

DIncurable economic obsolescence, since the cost to add a bathroom will always exceed the value buyers attribute to it

Why Curable functional obsolescence if adding a bathroom costs less than the value it adds Is Correct

Answer A: Curable functional obsolescence if adding a bathroom costs less than the value it adds

Functional obsolescence from inadequate bathrooms is typically curable—if the cost to add a bathroom is less than the value increase, it should be corrected. Curable functional obsolescence = items worth fixing economically.

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.

Comparable Sales (Comps)

Recently sold properties similar in size, condition, and location used by appraisers and agents to estimate a property's market value.

Capitalization Rate (Cap Rate)

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

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