Property Valuation
Functional obsolescence in the cost approach refers to a loss in value due to:
APhysical wear and tear on the structure
BDeficiencies or superadequacies in the property's design or features relative to current market expectations✓ Correct
CFactors external to the property such as a nearby landfill
DA decline in the neighborhood's overall desirability
Explanation
Functional obsolescence is a loss in value caused by outdated design, poor layout, or features that do not meet current market expectations (e.g.
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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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