California Real Estate Practice Exam

Which type of depreciation is least likely to be affected by local factors?

1. Economic obsolescence

2. Functional obsolescence

3. Physical depreciation

4. Physical deterioration

The correct answer is: Economic obsolescence

The type of depreciation least likely to be affected by local factors is economic obsolescence, as this form of depreciation primarily stems from external market influences rather than the condition of the property itself or its design. Economic obsolescence, also known as external obsolescence, occurs when the value of a property decreases due to outside factors, such as changes in the local economy, occupancy rates, or neighborhood dynamics. This can include things like a declining local job market or increased crime rates. In contrast, functional obsolescence relates to issues within the property itself, such as outdated layouts or insufficient features that make it less desirable compared to newer properties. Physical depreciation refers to the wear and tear of a property over time due to natural deterioration. Physical deterioration focuses specifically on the structural aspects and the state of repair of the property. Each of these types of depreciation can be significantly influenced by local factors, such as regional trends, maintenance practices, and the physical condition of nearby properties. Therefore, economic obsolescence stands out as being the type of depreciation least impacted by localized conditions, as it encompasses a broader economic perspective rather than just physical or functional characteristics of the property.