A California appraiser is using the cost approach to value a 50-year-old home near a recently completed California Department of Transportation (Caltrans) freeway widening project. The increased traffic noise has reduced property values in the neighborhood by an estimated 8%. This loss in value is classified as what type of depreciation, and can the property owner cure it?
Correct Answer
D) External obsolescence — incurable, because the cause is outside the property and beyond the owner's control
The freeway widening by Caltrans is an external factor outside the property boundaries and beyond the owner's control. The resulting traffic noise that reduces property values is classified as external (economic) obsolescence. It is incurable because the property owner cannot eliminate the source of the problem — the freeway and its traffic are permanent governmental infrastructure.
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Previous 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?
Next Question
A California appraiser is estimating the cost to cure functional obsolescence in a home in San Jose. The home has a 1-car garage in a market where 2-car garages are standard. The cost to convert to a 2-car garage is $45,000, and the market value added by the conversion is $55,000. Is this functional obsolescence curable, and what is the depreciation amount to apply?