An adverse off-site influence cannot be remedied by the subject owner through feasible changes to the improvement. Which category fits its supported value loss?
Correct Answer
B) External obsolescence.
Outside-origin influences are generally beyond a single owner’s remedy, but external obsolescence is not defined as universally permanent or unmitigable. Physical and functional deficiencies can also fail an economic cure test. Classify the stated cause separately from whether a feasible remedy is economically justified.
Why This Is the Correct Answer
Option B is correct because external obsolescence is a loss in value caused by negative influences outside the subject property that are generally beyond the owner's control. Such losses usually cannot be cured by making changes to the subject improvement, which matches the stem.
Why the Other Options Are Wrong
Option A: Physical deterioration.
Option A, physical deterioration, is loss from wear and tear or decay of the improvement itself. The stated cause here is an off-site influence, not the condition of the building.
Option C: Functional obsolescence.
Option C, functional obsolescence, is loss from a deficiency or superadequacy in the improvement's design or utility. The cause here lies outside the property, so it is not functional.
Option D: Curable functional inadequacy.
Option D, curable functional inadequacy, describes an in-property design deficiency that is economically worth fixing. The stem describes an off-site cause that the owner cannot remedy through changes to the improvement.
Where Does It Start?
Wear on the building is physical, a design problem inside is functional, and a cause outside the property line is external.
How to use: Use this location test first when classifying any loss.
Exam Tip
Classify the loss by where the cause originates, then consider curability as a separate step.
Common Mistakes to Avoid
- -Labeling an off-site problem as functional obsolescence
- -Assuming external obsolescence is permanent in all cases
- -Mixing up the cause of a loss with whether it is curable
Concept Deep Dive
Analysis
This question tests classifying depreciation by its cause. An adverse influence that originates off the site and cannot be fixed by changing the improvement is external obsolescence. Curability is a separate economic question from the category of loss.
Background Knowledge
Depreciation is grouped by cause: physical deterioration, functional obsolescence and external (economic) obsolescence. External obsolescence stems from outside influences such as market conditions or nearby uses and is generally beyond a single owner's control. Physical and functional items may be curable or incurable depending on cost and benefit.
Real-World Application
A highway expansion brings heavy traffic next to an otherwise sound home. Since the owner cannot fix the traffic by remodeling, the appraiser classifies the measured loss as external obsolescence.
More Cost Approach Questions
Which stated cause of supported value loss is external?
Improvement cost new is $450,000. Separately supported improvement depreciation deductions of $45,000, $25,000, $15,000 are expressly nonoverlapping and not already excluded from cost new. Add supported site value of $125,000, already reflecting any site losses. What total indicated value results?
Which two depreciation categories may each be classified as curable or incurable by comparing the cost to remedy a deficiency with the value gained?
Improvement cost new is $800,000. Separately supported improvement depreciation deductions of $120,000, $80,000, $40,000 are expressly nonoverlapping and not already excluded from cost new. No site is included. What depreciated improvement amount results?
The principle of anticipation in real estate valuation states that:
Which highest-and-best-use criterion addresses whether a proposed use is allowed by zoning and applicable legal restrictions?
Three comparables produce adjusted indications of $312,000, $309,000 and $315,000, requiring gross adjustments of 9%, 14% and 22% respectively. Verification also establishes that the first sale is the closest competitive substitute and its adjustments are better supported than the other two. Which indication deserves the most weight on those facts?
When reconciling value indications from the three approaches to value, an appraiser should:
A property sold at a cash-equivalent price of $1,062,500. Its stabilized annual NOI is $85,000. What is the indicated overall rate?
In reconciliation, an appraiser should:
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A comparable cash price is $450,000. Apply a supported total 2% market increase to that price, then a separately supported −$15,000 condition adjustment expressed in effective-date dollars. No other adjustments apply. What adjusted price results?