Which cause-to-category match is correct?
Correct Answer
B) Wear or damage:physical; utility/design loss:functional; adverse off-site influence:external.
Physical loss arises from wear or damage, functional loss from utility/design deficiencies or superadequacies, and external loss from adverse outside influences. Physical and functional items can be economically curable or incurable; outside influences are generally beyond a single owner’s control.
Why This Is the Correct Answer
Option B is correct because it pairs wear or damage with physical deterioration, utility or design loss with functional obsolescence, and adverse off-site influences with external obsolescence. These are the three generally recognized sources of depreciation. Each match describes the cause accurately.
Why the Other Options Are Wrong
Option A: Physical loss is incurable and external influences are curable.
Option A is wrong because physical loss is not uniformly incurable and external influences are not curable by the owner. Physical items can be curable or incurable, and external obsolescence arises from outside forces generally beyond the owner's control.
Option C: Off-site influences are deferred maintenance inside the building and are classified as physical wear.
Option C is wrong because off-site influences are not deferred maintenance inside the building and are not physical wear. They cause external obsolescence, which comes from outside the property.
Option D: Functional loss is not considered in the cost approach to value.
Option D is wrong because functional loss is considered in the cost approach. Functional obsolescence is one of the three recognized sources of depreciation deducted from cost new.
Wear, design, outside
Physical is wear, functional is design, external is outside. Ask where the loss comes from: the materials, the plan, or the neighborhood.
How to use: Use this when a question asks you to classify a cause of depreciation.
Exam Tip
Identify the source of the problem first; whether it is curable is a separate question.
Common Mistakes to Avoid
- -Classifying off-site influences as physical deterioration
- -Assuming all physical deterioration is incurable
- -Leaving functional obsolescence out of the cost approach
Concept Deep Dive
Analysis
This question tests the three generally recognized sources of depreciation and their causes. Physical deterioration comes from wear or damage, functional obsolescence from design or utility problems, and external obsolescence from adverse influences outside the property. The correct answer matches each cause to its category.
Background Knowledge
The three generally recognized sources of depreciation are physical deterioration, functional obsolescence and external obsolescence. Functional obsolescence is caused by the design of the property itself, and external obsolescence by negative influences outside the property, reflecting the immobility of real estate.
Real-World Application
An appraiser notes a worn roof, a bedroom reachable only through another bedroom, and a new highway next to the property. These are classified as physical deterioration, functional obsolescence and external obsolescence.
More Cost Approach Questions
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Previous Question
Improvement cost new is $520,000. Separately supported improvement depreciation deductions of $95,000 are expressly nonoverlapping and not already excluded from cost new. Add supported site value of $110,000, already reflecting any site losses. What total indicated value results?
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