Florida Real Estate Broker ExaminationValuation and Market AnalysisHard
An appraiser is tasked with valuing a 50-year-old historic commercial building located in a rapidly gentrifying urban core. The building's original design includes very small, enclosed offices and a narrow, dimly lit lobby, which are now considered inefficient and undesirable for modern tenants seeking open-plan layouts and collaborative spaces. This loss in value due to the outdated design is an example of:
- AEconomic Obsolescence
- BFunctional Obsolescence
- CExternal Obsolescence
- DPhysical Deterioration
Show answer & explanationAnswer & explanation
Correct answer: B. Functional Obsolescence
Functional obsolescence is a loss in value due to a property's inadequacy, over-adequacy, or unpopular design. The outdated layout and inefficient spaces in the historic building, compared to modern tenant preferences, directly illustrate functional obsolescence.
Why the other options are wrong
- A. Economic obsolescence is synonymous with external obsolescence, referring to external factors.
- C. External obsolescence is a loss in value due to factors outside the property boundaries, such as a changing neighborhood or economic downturn.
- D. Physical deterioration is wear and tear from use, age, or weather, not outdated design.
Functional Obsolescence
A loss in value due to a property's design, layout, or features being outdated, inefficient, or no longer desirable by current market standards.
- Can be curable or incurable.
- Examples: outdated kitchen, insufficient number of bathrooms, poor floor plan, inadequate electrical wiring.
- Differs from physical deterioration (wear and tear) and external obsolescence (outside factors).
Memory trick: Depreciation types tell you why a property's value goes down.