Property Valuation
Functional obsolescence in a property is BEST illustrated by:
AA cracked foundation caused by soil settlement
BA four-bedroom home with only one bathroom in a market that expects at least two✓ Correct
CA home located next to a busy railroad track
DPeeling exterior paint on a 20-year-old home
Explanation
Functional obsolescence results from features that are outdated or no longer meet current market standards — such as an inadequate number of bathrooms for a home's size — reducing the property's appeal and value.
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Key Terms to Know
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.
DepreciationA reduction in the value of an improvement (building) over time due to physical deterioration, functional obsolescence, or external factors.
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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