Property Valuation
Functional obsolescence in a Billings property might include which of the following examples?
APeeling exterior paint due to weather
BA single bathroom in a 5-bedroom home that was built in the 1950s✓ Correct
CFlooding due to a nearby river
DHigh property taxes compared to neighboring counties
Explanation
Functional obsolescence refers to a loss of value due to features that are inadequate or no longer meet current market standards, such as having only one bathroom in a large home. Peeling paint is physical deterioration, flooding is external obsolescence, and high taxes are economic/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.
Comparable Sales (Comps)Recently sold properties similar in size, condition, and location used by appraisers and agents to estimate a property's market value.
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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