Property Valuation
Which of the following is an example of economic (external) obsolescence in a New Orleans property?
AA kitchen with outdated appliances
BDeferred paint and maintenance
CA new elevated highway built next to a residential property that creates noise and reduces value✓ Correct
DPoor floor plan layout
Explanation
A new highway causing noise, pollution, and reduced curb appeal is an external factor causing economic obsolescence — a loss in value from outside the property that is typically incurable.
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Key Terms to Know
Net Operating Income (NOI)
The annual income generated by an income-producing property after subtracting operating expenses, but before debt service.
DepreciationA reduction in the value of an improvement (building) over time due to physical deterioration, functional obsolescence, or external factors.
AppraisalA 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.
Math Concepts
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