Homes beside a shuttered mall show 12% value loss in paired sales; the loss disappears in listings after redevelopment is announced. For an appraisal dated before the announcement, the obsolescence is:
Correct Answer
D) Applied — value reflects the market's reaction on the effective date
Why this is correct: The effective date of the appraisal governs; external obsolescence is measured based on market conditions on that date. Here, paired sales before the redevelopment announcement showed a 12% loss, so it must be applied. Why the other choices are wrong: "Ignored as temporary" is incorrect because temporary or not, the market reaction on the effective date is real. "Halved to reflect hope" is wrong; hope is not a recognized adjustment method. "Deferred entirely until the day the redeveloped mall actually reopens" improperly uses future information not known on the effective date. Exam tip: Always value property based on market conditions and information available on the effective date, not future expectations.
Why This Is the Correct Answer
Why this is correct: The effective date of the appraisal governs; external obsolescence is measured based on market conditions on that date. Here, paired sales before the redevelopment announcement showed a 12% loss, so it must be applied. Why the other choices are wrong: "Ignored as temporary" is incorrect because temporary or not, the market reaction on the effective date is real. "Halved to reflect hope" is wrong; hope is not a recognized adjustment method. "Deferred entirely until the day the redeveloped mall actually reopens" improperly uses future information not known on the effective date. Exam tip: Always value property based on market conditions and information available on the effective date, not future expectations.
More Cost Approach Questions
In a cost approach for a proposed building, the appropriate cost basis is generally:
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Market extraction of depreciation is limited by the fact that it:
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Curable physical deterioration is measured at cost to cure because:
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