California Real Estate Practice Exam

An investor constructs an office building but soon discovers that he can only rent a small percentage of the office space. The electrical, plumbing, cooling, and heating systems are also found to be oversized. This scenario is an example of:

1. curable economic obsolescence

2. curable functional obsolescence

3. incurable functional obsolescence

4. incurable locational obsolescence

The correct answer is: curable economic obsolescence

In this scenario, the correct answer involves understanding the concept of functional obsolescence, which relates to inefficiencies in a property's design or features that limit its utility or desirability. The issue arises when the systems of the building, such as electrical, plumbing, cooling, and heating, are oversized, indicating they are more complex and costly than necessary for the space being utilized. Functional obsolescence can be categorized as either curable or incurable based on whether the deficiency can be economically corrected. Curable functional obsolescence refers to situations where improvements can be made to restore the property's functionality without significant financial burden. In this case, since the building was only able to rent out a small percentage of its space and potentially undergoes modifications to better suit market needs or tenant expectations, adjustments can be made to address these inefficiencies. On the other hand, incurable functional obsolescence would apply if the modifications required to enhance the building’s utility exceed a reasonable cost or if the property's inherent features remain undesirable regardless of changes made. Meanwhile, locational obsolescence would pertain to issues arising from external factors affecting property value based on its location, rather than the building's structural or functional aspects. Thus, the intricacies surrounding the oversized systems and