California Real Estate Practice Exam

Some forms of depreciation are curable, some are not. Which of the following forms is not curable?

1. Economic obsolescence

2. Functional obsolescence

3. Physical depreciation

4. Physical wear and tear

The correct answer is: Economic obsolescence

The correct answer is economic obsolescence, which refers to a decrease in property value due to external factors beyond the property owner's control. This can include things like changes in the neighborhood, economic downturns, or new regulations that detrimentally affect property values. Economic obsolescence is considered not curable because it typically requires addressing broader issues outside the property itself, such as local market conditions or community trends that cannot be directly fixed or improved by the property owner. In contrast, functional obsolescence often results from issues within the property itself, such as outdated design or inadequate features, which can frequently be remedied through renovations or upgrades. While physical depreciation relates to the wear and tear of the property over time, such damage can often be repaired. Physical wear and tear is just one aspect of physical depreciation, which similarly can be addressed through maintenance and repairs. Thus, economic obsolescence stands out as the form of depreciation that lacks a direct solution from the property owner’s perspective.