Certified Residential Appraiser Practice Exam

What term describes a flaw in structure or design that decreases its utility and value?

1. External obsolescence

2. Functional obsolescence

3. Market obsolescence

4. Construction obsolescence

The correct answer is: Functional obsolescence

The term that describes a flaw in structure or design that decreases its utility and value is functional obsolescence. This concept refers specifically to a reduction in the desirability or usability of a property due to outdated features or issues in the design that make it less functional compared to more modern alternatives. For instance, a home with an outdated kitchen layout or a lack of modern amenities can be considered functionally obsolete, as it may not meet the current expectations of potential buyers. In understanding the context of the other terms, external obsolescence relates to factors outside the property that negatively impact its value, such as neighborhood decline or environmental issues. Market obsolescence is a broader term often used to describe decreases in market demand that affect property value, generally due to trends in the real estate market. Construction obsolescence is less commonly used but would refer specifically to physical aspects of the construction that no longer meet standards or expectations. Functional obsolescence is widely recognized in appraisal practice as a critical factor when assessing a property’s overall condition and value, making it the most appropriate term for describing flaws in structure or design that adversely affect utility and value.