Texas Real Estate State Practice Exam

Which of the following is not one of the 3 types of depreciation in the cost approach?

1. Physical Deterioration

2. Functional Obsolescence

3. Economic Obsolescence

4. Market Obsolescence

The correct answer is: Market Obsolescence

The correct answer is Market Obsolescence because it is not recognized as one of the three primary types of depreciation considered in the cost approach to property valuation. The three accepted types of depreciation include Physical Deterioration, which refers to the wear and tear that a property experiences over time; Functional Obsolescence, which occurs when a property becomes less desirable due to changes in design or layout that are no longer considered functional; and Economic Obsolescence, which involves a reduction in property value stemming from external factors, such as neighborhood decline or changes in the local economy. Market Obsolescence is not a term typically used in the context of property valuation. Though it might seem related to the economic factors affecting property value, it does not fit within the standard classifications of depreciation used in the cost approach. Therefore, within the framework utilized for real estate appraisal, Market Obsolescence does not align with the established concepts of depreciation.