When using the cost approach for a 15-year-old building, which type of depreciation would account for outdated electrical systems that don't meet current building codes?
Correct Answer
C) Functional obsolescence
Functional obsolescence refers to loss in value due to outdated design, systems, or features that don't meet current standards or buyer expectations. Electrical systems that don't meet current codes represent this type of internal functional deficiency.
Why This Is the Correct Answer
Functional obsolescence is the correct answer because it specifically addresses loss in value due to outdated design, systems, or features that don't meet current standards. Electrical systems that don't comply with current building codes represent an internal functional deficiency that reduces the property's utility and marketability. This type of depreciation occurs when building components become obsolete due to changing standards, technology, or buyer expectations, even if they're not physically deteriorated.
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