The three types of depreciation INCLUDE physical deterioration, functional obsolescence, and:

Rationale

External obsolescence is one of the three types of depreciation.

Depreciation encompasses various factors that reduce the value of an asset over time. Among these, external obsolescence arises from external economic factors affecting property value, distinct from physical or functional deterioration.

A (non-conforming value) YOUR ANSWER

Non-conforming value refers to properties that do not meet the current zoning or usage standards, which can affect valuation. However, it does not represent a recognized category of depreciation but rather a property characteristic that may limit marketability or desirability.

B (regression) YOUR ANSWER

Regression is the principle that states that a property’s value decreases when neighboring properties depreciate. While regression can influence property values, it is not classified as a type of depreciation itself, but more of a market phenomenon impacting overall valuation rather than a specific depreciation category.

C (progressive deterioration) YOUR ANSWER

Progressive deterioration is not a standard term in depreciation. Instead, the term ‘deterioration’ typically refers to the physical wear and tear of a property over time. This choice does not accurately represent a separate type of depreciation recognized in real estate valuation.

D (external obsolescence) CORRECT

External obsolescence encapsulates the loss in value due to external factors such as changes in the economy, neighborhood decline, or environmental issues. Unlike physical deterioration, which is related to the asset's condition, external obsolescence reflects market conditions beyond the property’s control, making it a distinct and acknowledged form of depreciation.

Conclusion

In summary, the three types of depreciation—physical deterioration, functional obsolescence, and external obsolescence—highlight various factors affecting asset values. While physical deterioration pertains to the asset's condition and functional obsolescence relates to loss of utility, external obsolescence is characterized by external market influences that detract from value, making it essential in comprehensive property valuation.

The three types of depreciation INCLUDE physical deterioration, functional obsolescence, and:

External obsolescence is one of the three types of depreciation.

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