What distinguishes an external cause from a functional cause?
Correct Answer
D) It originates in influences outside the property.
External obsolescence is distinguished by an outside-origin cause; functional obsolescence concerns utility deficiencies within the property. Outside effects can affect site and improvements and are generally beyond an individual owner’s control, but are not defined by permanent universal incurability.
Why This Is the Correct Answer
Option D is correct because external obsolescence is a loss in value caused by negative influences outside the subject property. Functional obsolescence, by contrast, arises from the design or utility of the property itself. The location of the cause, outside versus inside, is the distinguishing feature.
Why the Other Options Are Wrong
Option A: It is economically curable by a single owner.
Option A says an external cause is economically curable by a single owner. External influences are generally beyond the control of the subject owner or tenant, so this describes the opposite of external obsolescence.
Option B: It affects land but not the improvements.
Option B says an external cause affects land but not the improvements. Outside influences can affect both the site and the improvements, so this is not what distinguishes external from functional obsolescence.
Option C: Its existence alone prescribes a fixed cost-to-cure amount.
Option C says the existence of an external cause alone prescribes a fixed cost-to-cure amount. External losses are measured from market or income evidence, and their existence does not set any fixed cure cost.
External means outside
External starts with ex, as in exit: the cause is outside the property. Functional problems sit inside the walls.
How to use: Use this when a question asks what defines external versus functional obsolescence.
Exam Tip
Focus on where the cause originates; choices about curability or fixed amounts do not define the category.
Common Mistakes to Avoid
- -Treating external obsolescence as curable by the owner
- -Assuming external influences affect only land
- -Confusing a design flaw with an outside influence
Concept Deep Dive
Analysis
This question tests the defining difference between external and functional obsolescence. External obsolescence comes from negative influences outside the subject property, while functional obsolescence comes from utility deficiencies within the property. Curability, what is affected and fixed cost amounts are not the defining test.
Background Knowledge
External obsolescence, sometimes called economic obsolescence, is a loss caused by negative influences outside the property that are generally beyond the owner's control. It results from the immobility of real property. Functional obsolescence results from deficiencies or superadequacies in the property's own design.
Real-World Application
Two otherwise similar homes sell at different prices because one backs onto a new highway interchange. The appraiser attributes the discount to external obsolescence, since the cause lies outside the property and the owner cannot remove it.
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?
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Previous Question
Improvements have a current cost new of $600,000, an effective age of 20 years and a total economic life of 50 years. There are no other deductions and no salvage value. By the straight-line age-life method, what is the depreciated cost of the improvements?
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