A factory two blocks away emits odor only during summer inversions; paired sales show a 4% discount. The proper treatment is:
Correct Answer
B) A deduction reflecting the measured 4% market reaction
Why this is correct: The paired sales analysis provides direct market evidence. The 4% discount reflects how buyers, aware of the seasonal odor, have already priced it into their offers. The appraiser's role is to reflect this market reaction. Why the other choices are wrong: "No deduction whatsoever, since the nuisance is only seasonal" ignores the measurable market impact. "A ten percent standard nuisance discount" substitutes an arbitrary rule for actual market data. "Referral of the factory to code enforcement" is not within the appraiser's valuation role. Exam tip: When market data exists for an externality, use it directly; don't override it with assumptions.
Why This Is the Correct Answer
Paired sales showing a 4 percent discount are direct evidence of how the market has priced the nuisance, and that measured reaction is the proper deduction.
Why the Other Options Are Wrong
Option A: No deduction whatsoever, since the nuisance is only seasonal
The seasonality is already reflected in the market's 4 percent reaction. Declining any deduction substitutes the appraiser's judgment for the evidence.
Option C: A ten percent standard nuisance discount
A standard percentage has no evidentiary support and disregards the paired sales actually available.
Option D: Referral of the factory to code enforcement
Reporting the factory is not an appraisal function and does not address the value effect on the subject.
Measure the Reaction
Measure the Reaction, do not rate the nuisance. The market has already decided what it is worth.
How to use: When paired sales exist, use them. Assumed percentages are indefensible when evidence is available.
Exam Tip
External obsolescence is generally incurable, since the cause lies outside the owner's control. That distinguishes it from curable functional obsolescence.
Common Mistakes to Avoid
- -Discounting the evidence because the nuisance is intermittent
- -Applying a standard percentage instead of deriving one
- -Classifying an external cause as physical or functional depreciation
Concept Deep Dive
Analysis
External obsolescence is a loss in value caused by something outside the property boundaries, and the appraiser's task is to measure the market's reaction to it rather than to judge how serious it ought to be. Paired sales showing a 4 percent discount are direct market evidence: buyers, knowing about the summer odour, have paid 4 percent less for otherwise comparable properties. That is the figure, and it is defensible precisely because it was derived rather than assumed. The distractors each abandon that discipline. Declining any deduction because the nuisance is seasonal substitutes the appraiser's judgment for the market's, which has already priced the intermittency into the 4 percent. A standard 10 percent nuisance discount invents a figure with no support. And referring the factory to code enforcement, whatever its merits as civic action, is not an appraisal function and does not address the value question. External obsolescence is typically incurable, since the owner cannot remove the cause.
Background Knowledge
External obsolescence is a loss in value from causes outside the property, typically incurable. It is measured from market evidence such as paired sales or capitalized rent loss rather than from assumed percentages.
Real-World Application
An appraiser applies a 4 percent deduction for external obsolescence supported by three paired sales in the affected area, and explains the derivation in the report.
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