Property ValuationIntermediateDelaware Exam

What is 'external obsolescence' in real property appraisal?

ADeterioration caused by deferred maintenance and physical wear
BFunctional deficiency caused by outdated design or layout
CLoss in value caused by factors outside the property — such as a nearby industrial facility, highway noise, or neighborhood declineCorrect
DDepreciation caused by changes in building code requirements

Why Loss in value caused by factors outside the property — such as a nearby industrial facility, highway noise, or neighborhood decline Is Correct

Answer C: Loss in value caused by factors outside the property — such as a nearby industrial facility, highway noise, or neighborhood decline

External obsolescence (also called economic obsolescence) is a loss in value caused by negative factors outside the property and beyond the owner's control — such as proximity to industrial uses, high-traffic roads, neighborhood decline, or adverse economic conditions. It is considered incurable depreciation.

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.

Depreciation

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

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