Florida Real Estate Broker ExaminationValuation and Market AnalysisMedium
An appraiser is valuing a commercial property that includes a large, well-maintained parking garage. However, due to a recent change in zoning regulations, the garage is now significantly oversized for the current use and cannot be expanded for higher-density development. This situation would most likely be identified as a form of:
- AFunctional obsolescence
- BPhysical deterioration
- CEconomic obsolescence
- DExternal obsolescence
Show answer & explanationAnswer & explanation
Correct answer: A. Functional obsolescence
Functional obsolescence occurs when a property's utility or desirability is diminished due to an outdated design, style, or features that are no longer adequate or are over-adequate for its intended use, relative to current market expectations. An oversized parking garage due to zoning changes fits this description.
Why the other options are wrong
- B. Physical deterioration refers to the wear and tear on a property over time, not an issue of design or utility relative to market needs.
- C. Economic obsolescence is a type of external obsolescence caused by economic factors, which is not the primary issue here.
- D. External obsolescence is due to factors outside the property lines, like a nearby landfill or airport noise, not internal design or utility issues.
Functional Obsolescence
A loss in value due to a property's design, features, or layout becoming outdated, inefficient, or over-adequate for its intended use, relative to current market standards.
- Originates within the property boundaries.
- Can be curable or incurable.
- Examples include outdated floor plans, insufficient or excessive features (like an oversized garage).
Memory trick: Depreciation: Physical, Functional, External – three ways value declines.