New York State Real Estate Salesperson Licensing Exam

What type of depreciation occurs due to external factors impacting property value?

1. Natural depreciation

2. Functional obsolescence

3. Economic obsolescence

4. Physical depreciation

The correct answer is: Economic obsolescence

The correct answer recognizes the concept of economic obsolescence, which is a type of depreciation that arises from external factors that negatively impact property value. This includes elements such as changes in the neighborhood, increased crime rates, or adverse economic conditions that affect the desirability of a location. Economic obsolescence deals specifically with conditions outside the property itself that hinder its market value. Natural depreciation refers to loss in value caused by the natural aging process of the property or its components, while functional obsolescence pertains to the property's design features that are outdated or inefficient, making it less desirable to buyers. Physical depreciation, on the other hand, arises from physical wear and tear on the property due to age or use. Each of these types of depreciation is distinct in its causes and implications, but economic obsolescence is specifically tied to external influences on the property’s marketability.