California Real Estate Practice Exam

An incompatible positioning of a residence on a parcel of land would be an example of?

1. Economic obsolescence

2. Functional obsolescence

3. Physical obsolescence

4. Wear and tear

The correct answer is: Economic obsolescence

The situation described—a residence that is positioned incompatibly on a parcel of land—is best categorized as functional obsolescence. This term refers to a decrease in a property's value due to changes in the market or the property's design that render it less desirable. An example includes a home that is poorly laid out for modern living standards, resulting in a mismatch between the home's features and the needs or expectations of current buyers or renters. In contrast, economic obsolescence relates to external factors that negatively impact property value, such as changes in the neighborhood, economic downturns, or the construction of undesirable developments nearby. Physical obsolescence involves deterioration due to physical wear and tear, like leaks or structural damage. Wear and tear refers specifically to the deterioration that occurs over time from regular use and doesn't necessarily relate to positioning of a residence. Overall, recognizing functional obsolescence is crucial in real estate, as it influences property valuation and marketability in relation to design and layout, not just external economic factors.