Property Valuation
An Oklahoma property's value is depressed because the neighborhood is transitioning from residential to commercial use. This is an example of which type of depreciation?
APhysical deterioration
BFunctional obsolescence
CExternal obsolescence✓ Correct
DSuperadequacy
Explanation
External (economic) obsolescence results from outside forces like neighborhood transition, economic changes, or nearby development. A residential property in an area transitioning to commercial use suffers external obsolescence from incompatible adjacent uses.
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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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