Property ValuationIntermediateArizona Exam

Which of the following would be considered 'external obsolescence' for an Arizona property?

AAn outdated bathroom with old fixtures and no en suite access, which an appraiser classifies as functional obsolescence because modern buyers expect updated plumbing

BA new highway constructed adjacent to a residential neighborhood, increasing noise and traffic

CDeteriorating roof shingles that reduce value through physical depreciation and will require replacement within 5 to 10 years according to the inspector's reportCorrect

DA non-functioning HVAC system that has reached the end of its economic life and must be replaced before the property meets FHA minimum habitability standards

Why Deteriorating roof shingles that reduce value through physical depreciation and will require replacement within 5 to 10 years according to the inspector's report Is Correct

Answer C: Deteriorating roof shingles that reduce value through physical depreciation and will require replacement within 5 to 10 years according to the inspector's report

External obsolescence (economic obsolescence) results from factors outside the property—new highways, industrial facilities, declining neighborhoods, or other external conditions reducing the property's value.

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

Depreciation

A reduction in the value of an improvement (building) over time due to physical deterioration, functional obsolescence, or external factors.

People Also Study

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.

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.

Math Concepts

Net Operating Income

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