Which stated value loss is functional rather than physical or external?
Correct Answer
C) A supported market discount for inadequate bathroom utility.
A verified utility-related price discount for bathroom inadequacy is functional obsolescence. Architectural style can also cause functional obsolescence when the market recognizes a loss. Noise from outside the property and physical wear are separate causes.
Why This Is the Correct Answer
Option C is correct because a supported market discount for inadequate bathroom utility is a loss caused by the design of the property itself, which is functional obsolescence. The deficiency lies in how the home functions for its users, not in wear or an outside influence. The market support for the discount confirms that buyers recognize the loss.
Why the Other Options Are Wrong
Option A: A verified discount for highway noise outside the property.
Option A is a verified discount for highway noise outside the property. Because the cause lies outside the property boundaries, it is external obsolescence, not functional.
Option B: Loss from peeling paint requiring routine repair.
Option B is loss from peeling paint requiring routine repair. Peeling paint is wear and deterioration of a component, which is physical deterioration.
Option D: Loss from worn floor finishes through normal use.
Option D is loss from worn floor finishes through normal use. Wear from use is physical deterioration rather than a design deficiency.
Wear, design, outside
Physical is wear, functional is design, external is outside the property line. Match the cause to one of the three.
How to use: Use it to classify any depreciation item by asking where the loss comes from.
Exam Tip
Locate the cause first: inside the design, in the condition of materials, or beyond the site. The word utility or inadequate usually points to functional obsolescence.
Common Mistakes to Avoid
- -Calling outside nuisances such as traffic noise functional obsolescence
- -Classifying routine wear as functional
- -Assuming a design issue causes a loss without market support
Concept Deep Dive
Analysis
This question tests classification of depreciation by cause. Functional obsolescence is loss caused by the design of the property itself, physical deterioration comes from wear and decay, and external obsolescence comes from influences outside the property. The task is to find the option whose cause is a design or utility shortcoming of the property.
Background Knowledge
Depreciation in the cost approach is grouped into physical deterioration, functional obsolescence and external obsolescence. Functional obsolescence is the loss of value caused by the design of the property itself, such as inadequate or poorly arranged features. Architectural style can also cause functional obsolescence when the market recognizes a loss.
Real-World Application
An appraiser values a four-bedroom house with only one bathroom in a neighborhood where similar homes have two or more. Paired sales show buyers pay less for homes with this layout, so the appraiser treats the loss as functional obsolescence. Separately, worn carpet is treated as physical deterioration.
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