Florida Real Estate Broker ExaminationValuation and Market AnalysisMedium
An appraiser is valuing a commercial property that includes a large, well-maintained parking lot, but the property's primary tenant, a retail store, is struggling due to significant local road construction that has diverted traffic away from the area. This situation is expected to persist for at least another year. Which type of depreciation is most evident here?
- ACurable functional obsolescence
- BExternal obsolescence
- CPhysical deterioration
- DFunctional obsolescence
Show answer & explanationAnswer & explanation
Correct answer: B. External obsolescence
External obsolescence is a loss in value due to factors outside the property boundaries, often incurable. The road construction diverting traffic is an external factor negatively impacting the property's value, making it external obsolescence.
Why the other options are wrong
- A. Curable functional obsolescence relates to fixable design issues; this is an external, likely incurable, problem.
- C. Physical deterioration relates to wear and tear on the property itself.
- D. Functional obsolescence relates to design or utility issues within the property.
External Obsolescence
A loss in value due to factors outside the property itself, such as changes in the surrounding neighborhood, economic conditions, or environmental issues.
- Caused by external, off-site factors.
- Often considered incurable because the property owner has no control over the cause.
- Examples include adverse zoning changes, increased traffic noise, or economic recession.
Memory trick: External: 'E' for Environment, 'E' for 'Outside' the property.