Property ValuationIntermediateDelaware Exam

What is 'functional obsolescence' in real estate appraisal?

ASimply ordinary physical wear and tear over time that gradually reduces a building's overall useful life
BLoss in value due to outdated design, layout, or features that make the property less functionalCorrect
CValue loss due to location in a declining neighborhood
DDepreciation calculated using the age-life method

Why Loss in value due to outdated design, layout, or features that make the property less functional Is Correct

Answer B: Loss in value due to outdated design, layout, or features that make the property less functional

Functional obsolescence is a loss in value caused by outmoded design features, poor layout, or inadequate systems compared to current market standards. Examples: outdated kitchen, inadequate closet space, only one bathroom in a 5-bedroom home, or insufficient electrical capacity.

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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