Property Valuation
Functional obsolescence as a form of depreciation in real estate refers to:
APhysical deterioration of the building due to age and wear
BLoss in value due to negative factors outside the property
CLoss in value due to outdated features or design inadequacies within the property✓ Correct
DThe annual decline in value calculated for tax purposes
Explanation
Functional obsolescence is a loss in value caused by outdated or inadequate features within the property itself, such as an outdated floor plan, obsolete fixtures, or insufficient electrical capacity. It stems from the property's design or function, not physical wear or external factors.
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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.
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.
AppraisalA professional estimate of a property's market value prepared by a licensed or certified appraiser.
Math Concepts
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