Real Estate Appraisal Practice Exam

Which type of depreciation results from defects in a structure's design?

1. Economic obsolescence

2. Physical deterioration

3. Functional obsolescence

4. External obsolescence

The correct answer is: Functional obsolescence

Functional obsolescence refers to a loss in value due to issues inherent in the property's design or layout that make it less desirable or less useful than similar properties. This type of depreciation can arise from outdated features, inefficient room layouts, or any design flaws that reduce a property's functionality. For example, a home with too few bathrooms for the number of bedrooms, or one with a poorly designed kitchen that lacks adequate storage or work surfaces, may experience functional obsolescence. The reason this choice stands out is that it specifically addresses the internal characteristics of the property, focusing on how the design impacts usability and appeal to potential buyers or renters. Understanding this concept is crucial in real estate appraisal as it helps appraisers determine how design defects can affect market value and subsequently inform property improvements or renovation decisions.