Property Valuation
A Connecticut appraiser is valuing a historic property that has architectural significance. The appraiser notes that the historic designation limits potential renovations, which reduces its utility for some buyers. This restriction on use represents:
APhysical deterioration
BFunctional obsolescence due to restrictions on the property's use
CExternal obsolescence from the historic district designation✓ Correct
DBoth functional and external obsolescence
Explanation
Historic district designation that limits renovation and use of the property imposes external conditions (the designation itself comes from outside the property) that affect value. This is external obsolescence—a value loss due to forces outside the property itself.
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Key Terms to Know
Depreciation
A 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.
Gross Rent Multiplier (GRM)A quick valuation metric for income properties calculated by dividing the property price by gross annual rental income.
Math Concepts
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