Texas Real Estate Sales Agent ExamValuation and Market AnalysisHard
An appraiser determines that a property's value is negatively impacted because its five-bedroom layout only has one bathroom, which is below market expectations for a home of its size. This loss in value is best described as:
- AFunctional obsolescence
- BExternal obsolescence
- CPhysical deterioration
- DEconomic obsolescence
Show answer & explanationAnswer & explanation
Correct answer: A. Functional obsolescence
Functional obsolescence refers to a loss in value due to the property's design, layout, or features being outdated or inadequate by current market standards. A five-bedroom house with only one bathroom is a classic example of an inadequate design that reduces its functionality and appeal to modern buyers, thus causing a loss in value.
Why the other options are wrong
- B. External obsolescence is caused by factors outside the property, such as a nearby noisy highway.
- C. Physical deterioration refers to wear and tear or damage to the physical components of the property.
- D. Economic obsolescence is another term for external obsolescence, related to external market factors.
Functional Obsolescence
A form of depreciation resulting from a property's design, features, or layout being outdated, inefficient, or inadequate compared to current market expectations and preferences.
- Caused by factors within the property.
- Relates to design, layout, or features.
- Examples: outdated fixtures, poor floor plan, insufficient number of bathrooms.
Memory trick: Depreciation: 'P'hysical, 'F'unctional, 'E'xternal.