California Real Estate Broker ExaminationValuation and AppraisalMedium
An appraiser is evaluating a property and notes that a nearby, recently constructed highway has significantly increased traffic noise and reduced the desirability of the residential neighborhood. This situation is an example of which type of depreciation?
- AExternal obsolescence
- BCurable depreciation
- CFunctional obsolescence
- DPhysical deterioration
Show answer & explanationAnswer & explanation
Correct answer: A. External obsolescence
External obsolescence is a loss in value due to factors outside the property boundaries, such as changes in the surrounding neighborhood, economic conditions, or environmental factors like increased traffic noise. It is typically incurable.
Why the other options are wrong
- B. Curable depreciation refers to depreciation that can be economically fixed; external obsolescence is usually incurable.
- C. Functional obsolescence relates to outdated design or features within the property.
- D. Physical deterioration relates to wear and tear on the property itself.
External Obsolescence
External obsolescence is a loss in property value caused by factors outside the property itself, such as economic conditions, environmental hazards, or undesirable neighboring land uses.
- It is almost always considered incurable, as the property owner has no control over the cause.
- Examples include increased traffic noise, airport flight paths, or a nearby undesirable industrial facility.
- Impacts the property's desirability and market value.
Memory trick: P-F-E: Physical, Functional, External obsolescence.