Property ValuationIntermediateCalifornia Exam

Which of the following is an example of functional obsolescence in a residential property?

AA leaking roof caused by age and weathering

BA four-bedroom home with only one bathroomCorrect

CDecreased value because a new freeway was built nearby

DPaint peeling due to deferred maintenance

Why A four-bedroom home with only one bathroom Is Correct

Answer B: A four-bedroom home with only one bathroom

Functional obsolescence is a loss in value due to a deficiency or superadequacy in the property's design or layout relative to current market standards. A four-bedroom home with only one bathroom is a classic example of a functional deficiency that reduces appeal and value compared to updated homes.

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

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.

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.

Math Concepts

Profit & Loss

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