What type of depreciation occurs when a property becomes less desirable due to changes in the surrounding neighbourhood?
Correct Answer
D) External obsolescence
External obsolescence (also called economic obsolescence) is a loss in value caused by factors outside the property, such as neighbourhood decline, new nuisances or a weaker local economy. The owner usually cannot cure it. Physical deterioration and deferred maintenance concern the building's condition, and functional obsolescence concerns its design.
Why This Is the Correct Answer
External obsolescence is correct because the cause is outside the property: the surrounding neighbourhood has changed. That is the defining feature of external (economic) obsolescence, which the owner typically cannot cure by work on the property itself.
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