. Suppose that an appraiser has come to the following conclusions in evaluating

Question

. Suppose that an appraiser has come to the following conclusions in evaluating the subject property. Due to the dramatic shift in the perceived safety of the neighborhood, values of any residential properties in the area of the subject property have fallen by $10,000, on average. Due to the subject property’s age, physical deterioration to the building accounts for an estimate of $50,000 in lost value. An evaluation of the floor plan reveals that it is quite obsolete relative to current homebuyer preferences. This has a detrimental effect on the value of the property that is estimated to be approximately $15,000. Based on your understanding of adjustments related to accrued depreciation, which of the following pertains to the adjustment for external obsolescence

Explanation / Answer

Ans.

First of all, we need to understand What is External Obsolescence ?

When Pricing of a Property is done, there are several factors that work around. They can be internal or external. For eg : If a Very Big Mall , An international school or something like these opens up in an area, the price of the adjoining Properties Increases. But when the External Factors leads to the decrease in the value of property , This is termed as External Obsolescence. Examples can be : Busy Roads , A landfill nearby , Increase in Crying Rate at the Locality , Noise producing industries nearby etc. All these examples leads to External Obsolescence of a Property.

Now, in the above case the price of the residential properties has been down by $10,000 due to deteriorating safety conditions. This is the case of EXTERNAL OBSOLESCENCE as an outside factor (Environment Influence ) is contributing towards the decrease in the price of the residential properties.

The second point says that " due to the subject property age , physical deterioration to the building accounts to $50,000 in lost value " . Here , the decrease in value is because of INTERNAL factor ie AGE OF PROPERTY .

So, from our understanding of adjustments related to accrued depreciation , we come to a conclusion that the First adjustment of $10,000 pertains to External Obsolescence.

I hope this answer is clear. Do ask if any Doubts.

Best of Luck ! Keep Chegging !

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