Property Valuation
Functional obsolescence in real estate refers to:
APhysical deterioration of the structure due to age
BLoss in value from factors external to the property
CLoss in value from an outdated design, poor floor plan, or inadequate features✓ Correct
DDecrease in value caused by economic conditions
Explanation
Functional obsolescence is a loss in value caused by outdated design features, inefficient floor plans, or inadequate utilities. Examples include outdated kitchens, inadequate electrical systems, or too few bathrooms for the home's size.
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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.
Comparable Sales (Comps)Recently sold properties similar in size, condition, and location used by appraisers and agents to estimate a property's market value.
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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