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Valuation & Market Analysis term

Physical Deterioration

A loss in property value from wear, damage, or decay of the physical structure.

Why Physical Deterioration matters on the exam

This term belongs to Valuation & Market Analysis. The questions below are real items from Freehold's bank that use it - each one cites its source.

Exam questions using Physical Deterioration

Every Freehold question shows why the right answer is right — and cites its source.

Why is the cost approach typically considered less reliable when appraising a 40-year-old home in an active resale subdivision?

  1. Estimating accrued depreciation on an older structure becomes increasingly difficult and subjective
  2. Land cannot be valued separately from the improvements
  3. The income approach always supersedes the cost approach for older homes
  4. Older homes have no reproduction cost that can be meaningfully estimated by a qualified appraiser at all
Show answer & explanation

Estimating accrued depreciation on an older structure becomes increasingly difficult and subjective — As a structure ages, accurately measuring accumulated physical deterioration, functional obsolescence, and external obsolescence becomes harder and more subjective, reducing the cost approach's reliability compared with ample recent sales data.

Source: PSI National Real Estate Exam Content Outline §3 Valuation & Market Analysis

A structurally sound older single-family home sits on a large lot in an area recently rezoned for high-density multifamily development. A developer demolishes the home to build an apartment building. This decision most directly reflects:

  1. Functional obsolescence in the cost approach
  2. Physical deterioration of the site
  3. The principle of conformity
  4. A change in the highest and best use of the land
Show answer & explanation

A change in the highest and best use of the land — When zoning and market conditions change, the highest and best use of land can shift; here the land's most profitable legal use became multifamily development, making demolition of the existing home economically rational.

Source: PSI National Real Estate Exam Content Outline §3 Valuation & Market Analysis

A broken window and worn-out carpeting that a buyer could inexpensively repair or replace are examples of:

  1. Incurable functional obsolescence
  2. External obsolescence
  3. Curable physical deterioration
  4. Economic obsolescence
Show answer & explanation

Curable physical deterioration — Curable physical deterioration refers to ordinary wear-and-tear items, such as a broken window or worn carpet, that are economically practical to repair since the cost to fix is less than the value added.

Source: PSI National Real Estate Exam Content Outline §3 Valuation & Market Analysis

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