An appraiser in California is estimating external obsolescence for a residential property adjacent to a state-designated Superfund cleanup site in the San Fernando Valley. The contamination is on the neighboring property, not the subject. The appraiser determines through paired sales that properties near the site sell for 12% less than similar properties further away. In the cost approach, how should this external obsolescence be allocated?
Correct Answer
C) Apply the 12% reduction to both the land value and the depreciated improvement value
External obsolescence from environmental contamination on neighboring property affects both the land and the improvements. Unlike physical deterioration and functional obsolescence (which affect only improvements), external obsolescence reduces the desirability and value of the entire property — both the land and the structures. The 12% reduction should be applied to both components.
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Previous Question
A California appraiser is using the cost approach and determines that a home's swimming pool cost $60,000 to build. However, paired sales analysis in the local California market shows that pools add only $30,000 to property values. In the cost approach, how should the appraiser handle this situation?
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