A verified off-site rendering-plant odor reduces a well-maintained home’s value. What is appropriate?
Correct Answer
A) Treat it as external; analyze mitigation rather than assume a cure
The verified odor effect is outside-origin loss. Individual ownership generally cannot remove the off-site source, but mitigation costs and benefits should be analyzed if feasible. Neither filtration nor rezoning automatically cures the market penalty.
Why This Is the Correct Answer
Option A is correct because the verified odor comes from outside the property, which makes it external obsolescence. External losses are usually beyond the power of a single owner to influence and cannot be cured by changing the subject improvement. The appraiser can still analyze the costs and benefits of any feasible mitigation, but should not assume a cure.
Why the Other Options Are Wrong
Option B: Call it physical wear because the odor affects interior finishes
Option B calls it physical wear because the odor affects interior finishes. The home is well maintained, and the value loss stems from an off-site source, so the cause is external rather than deterioration of the building.
Option C: Assume air filtration restores the lost market value
Option C assumes air filtration restores the lost market value. Filtration does not remove the off-site source, and buyers may still discount the location, so any benefit must be analyzed rather than assumed.
Option D: Assume rezoning the subject property removes the odor source
Option D assumes rezoning the subject property removes the odor source. The source is a separate off-site plant, and rezoning the subject lot does not stop that plant from operating.
Off-site source, off-site fix
If the cause is off the property, changing the subject house does not remove it. Treat it as external and test any mitigation with market evidence.
How to use: Use this when a question describes a nuisance such as odor, noise or traffic coming from outside the subject property.
Exam Tip
Be cautious of answers that assume an easy cure for an outside nuisance. Look for the option that classifies the loss as external and calls for analysis.
Common Mistakes to Avoid
- -Classifying an off-site nuisance as physical deterioration
- -Assuming an interior fix eliminates a location penalty
- -Believing a change to the subject property removes an off-site source
Concept Deep Dive
Analysis
This question tests how to treat an off-site nuisance that reduces value. The odor comes from a rendering plant outside the property, so the loss is external obsolescence. Because one owner generally cannot remove the source, the appraiser should analyze whether any mitigation is feasible rather than assume the loss is cured.
Background Knowledge
External obsolescence results from influences outside the subject property, such as nuisances, traffic or adverse land uses. These losses are generally beyond any single owner's control and cannot be cured by changes to the subject improvement. Appraisers measure them with market evidence such as paired sales or income loss analysis.
Real-World Application
An appraiser values a well-kept house downwind of an industrial rendering plant, and paired sales show homes near the plant selling for less. The appraiser reports the loss as external obsolescence and notes that indoor air filtration may not change buyer perception of the location.
More Cost Approach Questions
Why can equivalent-utility replacement cost be useful for an obsolete improvement?
An appraiser estimates the current replacement cost new of the improvements at $890,000, accrued depreciation from all causes at $170,000, and land value at $325,000. All necessary cost components and depreciation are included in those amounts. What is the indicated property value?
Improvement cost new is $595,000. Separately supported improvement depreciation deductions of $48,000, $27,000 are expressly nonoverlapping and not already excluded from cost new. Add supported site value of $155,000, already reflecting any site losses. What total indicated value results?
What best supports a claimed loss from a bathroom-layout deficiency?
Improvement cost new is $1,850,000. Separately supported improvement depreciation deductions of $310,000, $620,000 are expressly nonoverlapping and not already excluded from cost new. No site is included. What depreciated improvement amount results?
Which scenario most strongly supports giving the cost approach substantial weight?
A cost total $650,000 explicitly includes $40,000 of non-realty FF&E outside the appraised real-property interest. Exclude it. Supported realty-only total depreciation is $55,000. Add site $200,000, with no overlap. What real-property cost indication results?
A 2,200-sf dwelling costs $200 per square foot, and a separate 400-sf garage costs $75 per square foot. These costs are complete and do not overlap. Both have an effective age of 15 years and a total life of 50 years, with straight-line depreciation and no salvage value. No site value or other loss is involved. What is the combined depreciated cost of the dwelling and garage?
A new feature in the improvements has a current cost of $45,000 and a market contribution of $18,000. The entire difference is due to superadequacy, with no physical or external loss and no overlap. What is the loss from the superadequacy?
An external influence causes an annual net income loss of $9,600. The capitalization rate for the loss is 8%, and no other economic factors change. What is the indicated loss in value of the whole property, before allocation between site and improvements?
People Also Study
Real Estate Market
13.6% of exam
Property Description
11.8% of exam
Land or Site Valuation
4.5% of exam
Sales Comparison Approach
16.4% of exam
Income Approach
8.2% of exam
Previous Question
Verified market analysis attributes the subject’s value loss solely to a new competing center, not an internal deficiency. What category fits?
Next Question
Nonoverlapping improvement costs are direct $385,000, indirect $55,000 and a separately supported entrepreneurial incentive $72,000 not otherwise included. Land is excluded. What full cost new results?