California Real Estate Practice Exam

Which element causes economic obsolescence?

1. industries moving out of the neighborhood

2. internal age of the property

3. modern kitchen design

4. planting trees in the garden

The correct answer is: industries moving out of the neighborhood

Economic obsolescence refers to a loss of value to a property due to external factors that are outside the control of the property owner. This type of obsolescence occurs when changes in the surrounding environment or economy negatively impact the property’s value. When industries move out of a neighborhood, it often leads to higher unemployment, decreased demand for housing, and a decline in property values. This shift in the economic landscape can deter potential buyers or renters, leading to longer vacancy periods and lower rental rates, ultimately causing a decrease in the property's overall value. The other options focus on elements that affect the property itself rather than external economic factors. The internal age of the property pertains to physical depreciation or functional obsolescence, while modern kitchen design can actually enhance value. Planting trees in a garden typically improves the aesthetic appeal and can increase property value, rather than detracting from it. Thus, the movement of industries away from a neighborhood is a clear example of economic obsolescence.