Property ValuationIntermediateArizona Exam

Functional obsolescence in an appraisal refers to:

AProgressive loss in value caused by the physical deterioration and wear and tear of a building's structural components, mechanical systems, and interior finishes over time

BLoss in value due to factors outside the property

CLoss in value due to outdated design features or inadequate facilities within the propertyCorrect

DLoss in value resulting from the owner's failure to perform routine maintenance, allowing preventable physical deterioration to accumulate and reduce the property's condition

Why Loss in value due to outdated design features or inadequate facilities within the property Is Correct

Answer C: Loss in value due to outdated design features or inadequate facilities within the property

Functional obsolescence is a loss in value due to outdated design, lack of modern amenities, or poor floor plans within the property itself, such as only one bathroom in a 5-bedroom home.

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.

Key Property Valuation Terms in This Question

Appraisal

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

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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.

Depreciation

A 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.

Gross Rent Multiplier (GRM)

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

Math Concepts

Profit & Loss

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