Florida Real Estate Sales Associate Examination Content OutlineReal Estate Investment and Business BrokerageEasy
A real estate sales associate is advising a client interested in purchasing an income-producing property. The client is concerned about the potential for the property's value to decrease over time due to physical wear and tear and functional obsolescence. Which of the following types of depreciation is the client primarily concerned with?
- ACurable obsolescence
- BPhysical deterioration
- CEconomic obsolescence
- DExternal obsolescence
Show answer & explanationAnswer & explanation
Correct answer: B. Physical deterioration
Physical deterioration refers to the wear and tear on a property due to age, use, or the elements, directly impacting its value over time. Functional obsolescence, while related to the property itself, is a separate category from physical deterioration.
Why the other options are wrong
- A. Curable obsolescence refers to depreciation that can be economically repaired or remedied, which is a characteristic of some types of depreciation, not a type itself.
- C. Economic obsolescence is caused by factors outside the property itself, such as a decline in the neighborhood or changes in market conditions.
- D. External obsolescence is similar to economic obsolescence, caused by negative influences outside the property's boundaries.
Physical Deterioration
Physical deterioration is a form of depreciation in real estate caused by the physical wear and tear of a property due to age, use, or exposure to the elements.
- Results from aging, use, or neglect.
- Can be curable (e.g., painting, roof repair) or incurable (e.g., structural collapse).
- Directly impacts the property's market value.
Memory trick: Don't let your property decay, or its value will quickly sway!