Property ValuationIntermediateDelaware Exam

What is 'functional utility' and how does it affect Delaware property value?

AThe utility company service available to a property

BA property's ability to function effectively for its intended purposeCorrect

CSimply the raw functional operating life remaining in a building's mechanical systems alone

DThe usefulness of location relative to commercial areas

Why A property's ability to function effectively for its intended purpose Is Correct

Answer B: A property's ability to function effectively for its intended purpose

Functional utility measures how well a property's design, layout, and features meet current market standards and expectations. Properties with poor functional utility (outdated kitchens, inadequate closets, no en-suite bath) suffer functional obsolescence and reduced value.

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

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.

Appraisal

A 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.

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