Property Valuation
A Pennsylvania appraiser uses a 'capitalized income loss' adjustment for functional obsolescence when:
AThe property's income is below market due to below-market leases
BA functional deficiency causes loss in rental income or increases operating costs, which is capitalized to estimate value loss✓ Correct
CThe building's mechanical systems reduce operating efficiency
DOnly for commercial properties with long-term leases
Explanation
When functional obsolescence causes a measurable income loss (e.g., inadequate HVAC requiring higher utility costs, or lack of loading dock reducing achievable rent), the appraiser can estimate the annual income penalty and capitalize it at an appropriate rate to quantify the value impact. This is most commonly applied in commercial appraisals.
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