Property Valuation
Which type of depreciation is considered incurable and arises from factors outside the property's boundaries?
APhysical deterioration
BFunctional obsolescence
CExternal (economic) obsolescence✓ Correct
DCurable physical depreciation
Explanation
External (economic) obsolescence is caused by factors outside the property, such as a nearby industrial facility or declining neighborhood. It is generally considered incurable because the owner cannot eliminate the external cause.
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Key Terms to Know
Capitalization Rate (Cap Rate)
A rate used to estimate the value of income-producing property, calculated as Net Operating Income divided by property value.
Net Operating Income (NOI)The annual income generated by an income-producing property after subtracting operating expenses, but before debt service.
Gross Rent Multiplier (GRM)A quick valuation metric for income properties calculated by dividing the property price by gross annual rental income.
AppraisalA professional estimate of a property's market value prepared by a licensed or certified appraiser.
Math Concepts
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