In the cost approach to valuation in California, all of the following are examples of external (economic) obsolescence EXCEPT:
Correct Answer
B) A home's value decreases because the property has an outdated electrical system that does not meet current California Title 24 energy standards
An outdated electrical system that does not meet California Title 24 energy standards is an example of functional obsolescence (a deficiency within the property itself), NOT external obsolescence. External obsolescence is caused by factors outside the property boundaries that are beyond the owner's control.
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More Property Valuation Financial Analysis Questions
Return of an investor’s investment is provided for through:
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A California homeowner's property is reassessed under Proposition 13 after a change of ownership. The new owner's son later inherits the property. Under Proposition 19, what condition must the son meet to avoid full reassessment to market value?
Which of these is a direct building cost?
- → A California home was purchased in 2020 for $750,000. In 2023 the owner completed a permitted ADU, to which the county assessor assigned a base year value of $200,000 on completion. The owner sells in 2026. Under Proposition 13, how is the property assessed immediately before that sale closes?
- → A 6-unit apartment building in San Francisco is subject to rent control. Contract rents total $15,800 per month. The appraiser uses a 3% vacancy and collection loss, annual operating expenses of $72,000, and a 4.5% capitalization rate to reflect rent control risk. What value does the income approach indicate on contract rents?
- → Which valuation method estimates the current cost to build a structure of equivalent utility, deducts accrued depreciation, and adds land value, and is relied on for unique properties when comparable sales are unavailable?
- → Under the replacement cost approach of appraisal, an appraiser is least interested in:
- → A buyer in San Jose purchases a home for $800,000 using a conventional loan with 20% down payment. Under Proposition 13, the base property tax rate is 1% of assessed value, plus a local Mello-Roos assessment of $2,400 per year. What is the buyer's total annual property tax in the first year?
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- → When conducting a sales comparison analysis in California, an appraiser discovers that the subject property has an Accessory Dwelling Unit (ADU) that was built under California's recent ADU legislation. How should the appraiser handle this feature?
- → A California appraiser is using the income approach for a rental property and must determine whether to include ADU (Accessory Dwelling Unit) rental income. The property has a legally permitted ADU that rents for $1,500/month. How should the appraiser treat this ADU income?
- → According to the principle of contribution, which scenario best illustrates an improvement that adds less value than it cost to build?
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Previous Question
A California appraiser is valuing a 20-year-old commercial building in downtown Sacramento using the cost approach. The replacement cost new is $1,800,000. The appraiser identifies: physical deterioration of $360,000, functional obsolescence (curable) of $90,000 for an outdated HVAC system, and external obsolescence of $150,000 due to a nearby California high-speed rail construction zone that creates noise. The land value is $950,000. What is the indicated value using the cost approach?
Next Question
An appraiser in Orange County, California is calculating physical deterioration using the age-life method. The home has an actual age of 25 years but an effective age of 15 years due to extensive renovations. The total economic life is estimated at 75 years. The replacement cost new of the improvements is $720,000. What is the accrued physical depreciation?