California Real Estate SalespersonProperty Valuation and Financial AnalysisMedium
A well-maintained home located directly next to a newly built landfill has lost significant market value, even though the home itself has no physical or design defects. What term best describes this type of value loss?
- ADeferred maintenance
- BCurable physical deterioration
- CFunctional obsolescence
- DEconomic (external) obsolescence
Show answer & explanationAnswer & explanation
Correct answer: D. Economic (external) obsolescence
Economic (external) obsolescence is a loss in value caused by factors outside the property itself, such as negative neighborhood influences like a nearby landfill. It is always considered incurable by the property owner since they cannot control external conditions.
Why the other options are wrong
- A. Deferred maintenance refers to needed repairs, not external neighborhood factors.
- B. Physical deterioration relates to the condition of the structure, not external factors.
- C. Functional obsolescence involves internal design flaws, not outside influences.
Economic (External) Obsolescence
A loss in property value caused by negative factors outside the property's boundaries, such as changes in the neighborhood, zoning, or nearby land uses.
- Always considered incurable by the property owner
- Caused by external, not internal, conditions
- Can affect land and improvements equally
Memory trick: Outside troubles, inside can't fix!