What distinguishes external obsolescence from physical depreciation?

What distinguishes external obsolescence from physical depreciation?

• A. External obsolescence arises from internal property issues
• B. Physical depreciation is caused by lifestyle changes
• C. External obsolescence is caused by outside factors
• D. Physical depreciation is only relevant to commercial properties

Answer: (C)

External obsolescence is characterized by the influence of external factors that negatively affect a property's value, independent of its physical condition. These factors can include changes in the economic environment, such as shifts in local market conditions, neighborhood decline, or adverse zoning changes. Unlike physical depreciation, which pertains to the wear and tear or deterioration of the property itself due to age or use, external obsolescence is specifically related to influences outside the property that can diminish its value. Understanding this distinction is critical for appraisers, as it allows them to identify and assess the various reasons why a property may be underperforming in the market. Physical depreciation, on the other hand, is a direct result of the property's condition, and it affects residential and commercial properties alike, rather than being limited to one type. Thus, identifying and appropriately categorizing these types of depreciation is essential for accurate property valuation.

External obsolescence is characterized by the influence of external factors that negatively affect a property's value, independent of its physical condition. These factors can include changes in the economic environment, such as shifts in local market conditions, neighborhood decline, or adverse zoning changes. Unlike physical depreciation, which pertains to the wear and tear or deterioration of the property itself due to age or use, external obsolescence is specifically related to influences outside the property that can diminish its value.

Understanding this distinction is critical for appraisers, as it allows them to identify and assess the various reasons why a property may be underperforming in the market. Physical depreciation, on the other hand, is a direct result of the property's condition, and it affects residential and commercial properties alike, rather than being limited to one type. Thus, identifying and appropriately categorizing these types of depreciation is essential for accurate property valuation.