External obsolescence is typically the last deduction taken in the cost approach because:
Correct Answer
D) It applies to the property after other losses are measured
Why this is correct: External obsolescence is deducted last because it is a loss in value from outside forces that affects the property as a whole after accounting for internal losses (physical and functional depreciation). This standard sequence prevents double-counting. Why the other choices are wrong: 'It applies only when the other two are zero' is incorrect; external obsolescence can exist alongside other forms. 'It is by far the least significant form of depreciation' is not necessarily true; it can be significant. 'Standards require that specific ordering' is misleading; while USPAP does not prescribe order, the described sequence is the established and logical practice in the cost approach. Exam tip: The standard cost approach order is: physical deterioration, functional obsolescence, then external obsolescence.
Why This Is the Correct Answer
Why this is correct: External obsolescence is deducted last because it is a loss in value from outside forces that affects the property as a whole after accounting for internal losses (physical and functional depreciation). This standard sequence prevents double-counting. Why the other choices are wrong: 'It applies only when the other two are zero' is incorrect; external obsolescence can exist alongside other forms. 'It is by far the least significant form of depreciation' is not necessarily true; it can be significant. 'Standards require that specific ordering' is misleading; while USPAP does not prescribe order, the described sequence is the established and logical practice in the cost approach. Exam tip: The standard cost approach order is: physical deterioration, functional obsolescence, then external obsolescence.
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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Which event would RAISE a building's effective age relative to last year's estimate?
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An appraiser is valuing a 1970s-era office building with a full-floor mechanical penthouse housing HVAC equipment that occupies 8% of the gross building area and consumes $42,000 annually in maintenance and energy costs—nearly triple the cost of modern, efficient rooftop units serving comparable space. The appraiser determines the penthouse is superadequate and its removal would not impair utility but would reduce operating expenses and increase net income. Which method is most appropriate for quantifying the functional obsolescence attributable to this superadequacy?