Auctioneer Practice Exam

Which of the following describes "functional depreciation"?

1. A decrease in property value due to market conditions

2. A decline in property value due to its physical wear

3. A reduction in value due to outdated features

4. A change in property use restrictions

The correct answer is: A reduction in value due to outdated features

"Functional depreciation" refers specifically to a decrease in a property's value that occurs because it no longer meets the needs or preferences of potential buyers due to outdated features or technology. This means that even if the physical condition of the property is still sound, its functional characteristics might make it less desirable. For instance, an older home may have a layout or amenities that are not as popular or effective by current standards, such as a lack of air conditioning or outdated kitchen designs. In contrast, the other options pertain to different types of depreciation or market effects. A decrease in property value due to market conditions typically relates to external economic factors influencing property value. A decline in property value due to physical wear refers to physical depreciation, which arises from gradual deterioration over time. Changes in property use restrictions involve regulatory factors that can impact a property's use and hence its value, which does not specifically align with the concept of functional depreciation.