Certified Residential Appraiser Practice Exam

What term describes the ability of a property to fulfill its intended function according to current market demands?

1. Market Value

2. Functional Utility

3. Effective Purchasing Power

4. Investment Value

The correct answer is: Functional Utility

The term that best describes the ability of a property to fulfill its intended function according to current market demands is functional utility. This concept reflects how well a property meets the needs of its users in relation to its design, layout, and features. For instance, a home that has an efficient layout, modern amenities, and sufficient space to cater to the lifestyle and preferences of potential buyers would be considered to have high functional utility. In the context of real estate appraisal, functional utility is crucial in assessing a property's value since it directly impacts how desirable a property is in the current market. If a property lacks functional utility—perhaps because of outdated features or a poor layout—it may be less attractive to potential buyers, leading to a reduction in its market value. The other options pertain to different concepts: market value refers to the price at which a property would sell in a competitive real estate market; effective purchasing power relates to the buyer's ability to purchase property, factoring in aspects like financing; and investment value pertains to the specific worth of a property to a particular investor based on their individual criteria and circumstances. While all these concepts are important in real estate and appraisal, functional utility specifically addresses how well a property serves its intended purpose in the current market.