Property Valuation
An appraiser notes that a property's garage was built without permits and is non-conforming. This would most likely represent:
APhysical deterioration
BExternal obsolescence
CFunctional obsolescence or a legal non-conforming issue✓ Correct
DEconomic obsolescence
Explanation
An unpermitted garage may represent functional obsolescence due to legal non-conformance. It may require costly retrofitting or demolition to comply with local codes, reducing value.
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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.
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