Which of the following correctly identifies the three types of depreciation recognized in real estate appraisal?
Correct Answer
A) Physical deterioration, functional obsolescence, and external (economic) obsolescence
Appraisers recognize three types of depreciation: (1) Physical deterioration — wear and tear on the structure, particularly relevant in Alaska due to harsh winters and freeze-thaw cycles; (2) Functional obsolescence — loss in value from outdated design or features; and (3) External (economic) obsolescence — loss caused by factors outside the property, such as changes in the surrounding neighborhood or local economy.
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Related Concepts
The cost approach estimates a property's value by calculating the current cost to rebuild the improvements, subtracting accumulated depreciation, and adding the land value. It is most reliable for new construction and special-purpose properties.
Depreciation is an accounting method of allocating the cost of an asset over its useful life, allowing investors to deduct a portion of the asset's cost each year.
Highest and best use is an appraisal concept that identifies the most profitable, legally permitted, physically possible, and financially feasible use of a property. It is the foundation of all property valuation.
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- → The income approach to appraisal is most commonly used for which type of property?
- → Which formula correctly calculates the capitalization rate?
- → External obsolescence in Oklahoma:
- → The sales comparison approach to appraisal is most appropriate for which type of property?
- → Which of the following correctly lists the three types of depreciation recognized in real estate appraisal?
- → The sales comparison approach to appraisal is most commonly used for which type of property?
- → Which four tests must a use satisfy to qualify as the highest and best use of a property?
- → Three depreciation:
- → Cap rate:
- → Which formula best represents the cost approach to appraisal?
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