Real Estate Appraisal Practice Exam

What term describes a loss in value caused by wear and tear?

1. Obsolescence

2. Physical deterioration

3. Functional obsolescence

4. Market depreciation

The correct answer is: Physical deterioration

The term that describes a loss in value caused by wear and tear is physical deterioration. This concept refers specifically to the decline in a property's condition due to aging, daily use, and environmental factors that result in physical wear. Over time, properties can suffer from various types of damage such as cracking, peeling paint, or outdated fixtures, all of which contribute to a decrease in their overall functional and aesthetic appeal. In contrast, obsolescence refers to a loss in value due to outside factors, while functional obsolescence indicates a reduction in a property's usefulness or desirability due to design flaws or outdated features. Market depreciation relates to the overall drop in property values due to economic factors or shifts in market demand, not directly tied to the physical condition of the property itself. Understanding these distinctions is key to accurately assessing property values and conditions in real estate appraisal.