Property Valuation
Depreciation in the cost approach to appraisal is divided into three categories. Which of the following is an example of 'physical deterioration'?
AA poor floor plan with a bedroom accessible only through another bedroom
BCracked foundation walls from settling and aging✓ Correct
CA nearby factory causing traffic and odor problems
DOutdated plumbing fixtures that are no longer functional
Explanation
Physical deterioration is deterioration resulting from physical wear, aging, or damage — like a cracked foundation, worn roof, or peeling paint. The other examples are functional obsolescence and external obsolescence.
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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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