Property Valuation
In New York, which of the following is an example of 'external obsolescence' (also called economic or locational obsolescence)?
AAn outdated kitchen that needs to be modernized
BRoof damage from a recent storm
CA nearby highway that was built after the home was constructed, causing noise and traffic✓ Correct
DAn inefficient floor plan in a residential property
Explanation
External (economic/locational) obsolescence is a loss in value caused by factors outside the property itself — such as a nearby highway, industrial facility, or neighborhood decline. Unlike physical deterioration or functional obsolescence, external obsolescence is generally incurable because the owner cannot eliminate the external cause.
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Key Terms to Know
Net Operating Income (NOI)
The annual income generated by an income-producing property after subtracting operating expenses, but before debt service.
DepreciationA 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.
Math Concepts
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