Property Valuation
Which type of depreciation in a Minnesota appraisal is caused by factors outside the property, such as a nearby industrial facility?
APhysical deterioration
BFunctional obsolescence
CExternal obsolescence✓ Correct
DDeferred maintenance
Explanation
External (economic) obsolescence is caused by factors outside the property, such as nearby industrial uses, highway expansion, or neighborhood decline. It is always incurable because the owner cannot control 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.
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.
Gross Rent Multiplier (GRM)A quick valuation metric for income properties calculated by dividing the property price by gross annual rental income.
Math Concepts
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