Which of the following is an example of external (economic) obsolescence?
Why A factory built adjacent to a residential neighborhood Is Correct
Answer B: A factory built adjacent to a residential neighborhood
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
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- Which type of depreciation is caused by factors external to the property, such as a nearby industrial plant?Property Valuation
- External obsolescence (economic obsolescence) is caused by:Property Valuation
- External obsolescence (economic obsolescence) differs from other depreciation types because it is:Property Valuation
- Which type of depreciation results from factors outside the property, such as proximity to a freeway or an industrial plant?Property Valuation
Key Terms to Know
Local government regulations that control land use by dividing areas into zones specifying permitted uses, building sizes, and densities.
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.
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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