Which stated change produces an external value loss?
Correct Answer
B) A verified adverse off-site truck-terminal noise/traffic effect.
The question expressly supplies a verified adverse truck-terminal effect. Location changes such as schools or parks can also be beneficial or adverse depending on evidence, so their labels alone are not guarantees. Classify the isolated outside influence rather than assume all nearby industry reduces value.
Why This Is the Correct Answer
Option B is correct because a verified adverse off-site effect, such as truck-terminal noise and traffic, is an outside influence that reduces the subject's value. That is external obsolescence. The owner has little or no control over the terminal, which fits the definition of an external influence.
Why the Other Options Are Wrong
Option A: A verified beneficial new-school effect.
Option A describes a verified beneficial new-school effect. A beneficial outside influence increases value, so it does not produce an external value loss.
Option C: A verified beneficial sidewalk and street-tree improvement nearby.
Option C describes a verified beneficial sidewalk and street-tree improvement nearby. Because its verified effect is positive, it adds value rather than causing an external loss.
Option D: A verified beneficial new-park effect.
Option D describes a verified beneficial new-park effect. A positive outside influence raises value, so it is not a source of external obsolescence.
Outside and Adverse Equals External
External obsolescence needs two things: the cause is outside the property, and its effect on value is negative.
How to use: Use this two-part test to classify any off-site influence.
Exam Tip
Look at the stated direction of the effect; an outside influence described as beneficial is not a loss.
Common Mistakes to Avoid
- -Treating a beneficial nearby change as a loss
- -Assuming all nearby industry reduces value without evidence
- -Confusing external obsolescence with functional obsolescence
Concept Deep Dive
Analysis
This question tests the principle of externalities and the meaning of external obsolescence. Only an adverse influence from outside the property produces an external value loss; beneficial outside influences add value rather than reduce it. The key is the stated, verified direction of each effect.
Background Knowledge
The principle of externalities holds that uses outside a property, over which its owner has limited or no control, can have positive or negative effects on value. A negative outside effect causes external obsolescence. Whether a particular nearby use helps or hurts depends on market evidence, not its label alone.
Real-World Application
A new truck terminal opens across the street from a subdivision, and paired sales show buyers paying less for homes facing it. The appraiser measures that loss as external obsolescence in the cost approach.
More Cost Approach Questions
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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?
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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?
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Previous Question
Improvements with a cost new of $580,000 have a remaining economic life of 40 years out of a total economic life of 50 years, and the site is worth $90,000. Assuming straight-line depreciation with no salvage value and no additional losses, what is the cost approach indication?
Next Question
A deficiency can be cured today at a cost of $22,000, and the cure would add $25,000 to value. The current cost new of the improvements already includes $14,000, at current prices, for installing the equivalent item in new construction. What deduction for the deficiency avoids counting that amount twice?