Chapter #7

External obsolescence

A dwelling's proximity to a busy expressway could result in Physical deterioration Functional obsolescence External obsolescence Functional utility

Functional obsolescence, incurable

A layout deficiency in a house results in a loss in value of $5,000. The layout deficiency could be corrected at a cost of $6,500. This depreciation is categorized as Physical deterioration, curable Physical deterioration, incurable Functional obsolescence, curable Functional obsolescence, incurable

Functional obsolescence, curable

A subject property suffers a value loss of $10,000 due to an outdated kitchen. This kitchen can be updated at a cost of $9,000. What type of depreciation is this? Physical deterioration, curable Physical deterioration, incurable Functional obsolescence, curable Functional obsolescence, incurable

True

Economic life is generally shorter than physical life. True False

never

External depreciation is ________ part of the structure. a small never considered the most important none of the above

True

External obsolescence is usually incurable. True False

Outside the subject property

External obsolescence originates from Outside the subject property Within the subject property Either within the subject property or outside the subject property External obsolescence has nothing to do with the subject property

can

Functional obsolescence ________ be present in a new building. can cannot will not none of the above

Curable or incurable

Functional obsolescence can be categorized as Physical or functional Curable or incurable Internal or external Location or layout

False

Functional obsolescence cannot be cured. True False

False

Functional obsolescence cannot be present in a new building. True False

True

Functional obsolescence is sometimes called functional inutility. True False

True

In many cases, external obsolescence will be shared by both land and building components. True False

False Physical deterioration is not always present, if the structure is brand new. External obsolescence may or may not be present.

Physical and external depreciation are always part of the structure. True False

Depreciation

The difference between the cost new and the current value of a property on the same date is called Effective loss Depreciation Economic loss Book value

Breakdown

The most detailed method for estimating depreciation is the __________ method. Unit-in-place Market extraction Breakdown None of the above

Useful

The period of time over which a structure or a component of a property may reasonably be expected to perform the function for which it was designed is the definition of _______ life. Useful Physical Economic Remaining

Economic

The period over which improvements to real estate contribute to property value is the definition of ________ life. Useful Physical Economic Remaining

The three primary methods of estimating depreciation

The three primary methods of estimating depreciation are: 1. Age - life method 2. Market extraction method (sometimes known as the sales comparison method) 3. Breakdown method (sometimes called the observed condition method)

Total Economic Life

Total Economic Life = Effective Age + Remaining Economic Life

Physical deterioration

Wear and tear on a building is classified as Physical deterioration Functional obsolescence External obsolescence Economic obsolescence

Worn out roof shingles

Which of these would be an example of physical deterioration? Worn out roof shingles Location near an industrial plant Poor room layout All of these are examples of physical deterioration

External

________ obsolescence is usually incurable. External Functional Maternal none of the above

Actual Age

__________ Age is defined as the number of years that have elapsed since construction of an improvement was completed, also called historical or chronological age.

Physical Life

__________ Life is defined as 1. An estimate of how old a building or improvement will be when it is worn out. 2. The total period a building lasts or is expected to last as opposed to its economic life,

Useful Life

__________ Life is defined as The period of time over which a structure or a component of a property may reasonably be expected to perform the function for which it was designed.

Curable Physical Deterioration

___________ Physical Deterioration is defined as A form of physical deterioration that can be practically and economically corrected as of the date of appraisal.

Incurable Physical Deterioration

___________ Physical Deterioration is defined as A form of physical deterioration that cannot be practically or economically corrected as of the date of appraisal.

Effective Age

____________ Age is defined as the age of property that is based on the amount of observed deterioration and obsolescence it has sustained, which may be different from its chronological age.

Remaining Economic Life

____________ Economic Life is defined as The estimated period over which existing improvements are expected to contribute economically to a property; an estimate of the number of years remaining in the economic life of a structure or structural components as of the effective date of the appraisal; used in the economic age-life method of estimating depreciation.

Functional Inutility

_____________ Inutility is defined as Impairment of the functional utility of a property or building according to market tastes and standards; equivalent to functional obsolescence when on-going change makes layouts and features obsolete and impairs value.

Economic Life

_____________ Life is defined as the period over which improvements to real estate contribute to property value.

External Obsolescence

_____________ Obsolescence is defined as: An element of depreciation; a diminution in value caused by negative externalities and generally incurable on the part of the owner, landlord, or tenant.

Depreciation

_____________ is 1. In appraisal, a loss in property value from any cause; the difference between the cost of an improvement on the effective date of the appraisal and the market value of the improvement on the same date. See also external obsolescence; functional obsolescence; physical deterioration. 2. In accounting, an allocation of the original cost of an asset, amortizing the cost over the asset's life; calculated using a variety of standard techniques. There are three different kinds of ___________: Physical deterioration Functional obsolescence External obsolescence

Physical Deterioration

______________ Deterioration is The wear and tear that begins when a building is completed and placed into service.

Functional Obsolescence

_______________ Obsolescence is defined as The impairment of functional capacity of improvemenmts according to market tastes and standards.