Property ValuationIntermediateCalifornia Exam

What is 'functional obsolescence' in an appraisal?

ALoss of value from external market conditions, under standard appraisal methodology, consistent with USPAP appraisal standards

BLoss of value from defects within the property that reduce its utility or desirability, such as an outdated floor plan or inadequate plumbingCorrect

CPhysical deterioration from deferred maintenance, as typically applied in a comparative market analysis, under standard appraisal methodology, consistent with USPAP appraisal standards

DLoss of value from environmental contamination, consistent with USPAP appraisal standards, under standard appraisal methodology

Why Loss of value from defects within the property that reduce its utility or desirability, such as an outdated floor plan or inadequate plumbing Is Correct

Answer B: Loss of value from defects within the property that reduce its utility or desirability, such as an outdated floor plan or inadequate plumbing

Functional obsolescence is a loss in value due to features of the property itself that reduce utility or desirability, such as outdated kitchens or baths, poor floor plans, inadequate electrical systems, or ceiling heights that don't meet current market expectations.

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.

Comparable Sales (Comps)

Recently sold properties similar in size, condition, and location used by appraisers and agents to estimate a property's market value.

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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