Property Valuation
In Tennessee, which type of depreciation is caused by changes in the surrounding neighborhood, such as industrial development near a residential area?
APhysical deterioration
BFunctional obsolescence
CExternal (economic) obsolescence✓ Correct
DCurable depreciation
Explanation
External (economic) obsolescence results from factors outside the property boundaries — such as nearby industrial development, declining neighborhood conditions, or adverse economic forces.
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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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