A home with a single-car garage in a market expecting two-car garages has:
Correct Answer
B) A functional deficiency measured by market reaction
Why this is correct: Functional obsolescence is a loss in value due to a flaw in the design, materials, or layout relative to market standards. A single-car garage when the market expects two is a design deficiency (a superadequacy or inadequacy) that is measured by buyer reaction (e.g., lower price or longer market time). Why the other choices are wrong: "Physical deterioration of the garage structure" is wrong because the issue is design, not physical wear or damage. "External obsolescence from neighborhood standards" is wrong because external obsolescence is caused by factors outside the property boundaries (e.g., location near a nuisance); here, the deficiency is within the property. "No obsolescence, since a garage exists" is wrong because the existence of a feature does not preclude functional deficiency if it does not meet market expectations. Exam tip: Functional obsolescence is internal; external obsolescence is caused by outside factors.
Why This Is the Correct Answer
Option B classifies the item correctly as a functional deficiency and identifies the correct measuring stick, which is market reaction. The defect lies inside the property lines in the improvement itself, so it cannot be external, and nothing about it involves wear or damage, so it cannot be physical. Naming the measurement matters because functional obsolescence is quantified by what buyers pay, evidenced by paired sales, longer marketing time, or capitalized rent differences.
Why the Other Options Are Wrong
Option A: Physical deterioration of the garage structure
Physical deterioration describes what age, weather, and use have done to a component, such as a sagging garage door or a cracked slab. The garage in this stem may be in perfect condition and still be too small for the market. Confusing size with wear is the classic error in depreciation classification.
Option C: External obsolescence from neighborhood standards
External obsolescence originates beyond the property boundaries, in things like an adjacent industrial use, a busy arterial, or a regional employment decline. Market expectations about garage size are a standard the improvement fails to meet, not a force acting on the site from outside. The word 'neighborhood' in the option is bait.
Option D: No obsolescence, since a garage exists
The presence of a feature says nothing about whether it satisfies buyer expectations. If the market is built around two-car garages, a one-car garage still costs the seller money in price or in days on market. Denying the deficiency also skips the appraiser's duty to test the market rather than assume.
Lot Line Test
Draw the lot line in your head. Wear inside the line is physical, a design or component shortfall inside the line is functional, and anything causing the loss from outside the line is external. Location cannot be cured; design sometimes can.
How to use: For any obsolescence item, first ask where the cause sits relative to the lot line, then ask whether it is wear or design. Two questions resolve nearly every classification stem.
Exam Tip
Beware options that pair the right category with the wrong measuring method, or the wrong category with a true-sounding neighborhood reference. Both halves of the option must be correct.
Common Mistakes to Avoid
- -Calling anything involving the neighborhood external obsolescence
- -Measuring functional deficiency by construction cost instead of market reaction
- -Assuming a feature that exists cannot be deficient
Concept Deep Dive
Analysis
The question sorts a defect into one of the three depreciation categories. Physical deterioration is wear from age and use, functional obsolescence comes from a shortcoming in the design, layout, or components inside the property lines, and external obsolescence comes from influences outside the property lines such as a nuisance use or a weak local economy. A one-car garage in a market that expects two is a deficiency in what was built, so it is functional, and the loss is a deficiency rather than a superadequacy because the property has less than the market wants. The measure of that loss is what buyers actually deduct, taken from paired sales or from a supported cost analysis, not from the construction cost of the missing bay.
Background Knowledge
You need the three categories of depreciation and the inside-versus-outside test that separates functional from external obsolescence. You also need to know that functional obsolescence can be a deficiency or a superadequacy, and that the loss is measured by market evidence rather than construction cost.
Real-World Application
In a subdivision where every comparable has a two-car garage, the appraiser finds two matched pairs showing a consistent discount for one-car homes and applies that market-derived amount rather than the cost of adding a bay.
More Cost Approach Questions
In a cost approach for a proposed building, the appropriate cost basis is generally:
A warehouse cost $210,000 to build when the cost index stood at 105. The index is now 210. Its indicated current cost is:
The age-life method expresses depreciation as:
Market extraction of depreciation is limited by the fact that it:
Functional obsolescence caused by a deficiency is measured as curable when:
Curable physical deterioration is measured at cost to cure because:
A 2,050 sq ft dwelling is priced at $178 per square foot with a $34,000 detached garage and $21,500 of site improvements. Cost new is:
A house has three bedrooms sharing one bathroom, and adding a second bath is economically justified. This is:
Direct costs in a construction budget include:
An appraiser writes that a 40-year-old house has an effective age of 10 but describes original wiring, original kitchen and a 25-year-old roof. The report's problem is:
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Previous Question
Rent loss of $250 per month is attributed to a subject's location beside a truck depot, and the market multiplier is 110 (monthly GRM). What external obsolescence does capitalization indicate for the whole property?
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Total cost new including entrepreneurial incentive is $352,000. Physical deterioration is $44,000, functional obsolescence is $12,000 and external obsolescence is $9,000. The site is valued at $120,000. What value does the cost approach indicate?