Property Valuation
In New Jersey property appraisal, 'functional obsolescence' refers to:
APhysical wear and tear on the improvements
BA loss in value due to deficiencies or superadequacies in the property's design or layout compared to current market standards✓ Correct
CNegative economic conditions in the neighborhood
DDepreciation due to environmental contamination
Explanation
Functional obsolescence is a loss in value caused by defects in design, outdated features, or functional inadequacies (like a one-bathroom home in a market where buyers expect two) or superadequacies (features that cost more to build than their contribution to value). It can be curable or incurable.
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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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