Property Valuation
External (economic) obsolescence in a South Dakota property could be caused by:
AA cracked foundation
BA one-car garage in a two-car market
CA new feedlot being built adjacent to a residential neighborhood✓ Correct
DOutdated plumbing systems
Explanation
External obsolescence is caused by factors outside the property, such as a nearby feedlot, new highway, or declining neighborhood. It is generally incurable and not caused by the property itself.
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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.
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