Final answer:
The correct answer is C, external obsolescence, which refers to the devaluation of a property due to negative influences from the external environment, such as the surrounding area being run down.
Step-by-step explanation:
The correct answer is option C, which is external obsolescence. External obsolescence occurs when something outside the property negatively impacts its value. In this case, even though the home is well-maintained, the value may be decreased due to the run-down state of the surrounding area.
This contrasts with physical depreciation, which refers to wear and tear of the property itself, and functional obsolescence, which is about the property’s design or features becoming outdated. Reproduction cost is the cost of reproducing an exact replica of the property, which is not directly relevant to the question.
External obsolescence is often beyond the control of the property owner and can occur in neighborhoods where capital flight has happened, and houses become rentals that spiral into decay.
As mentioned in the reference material, planned obsolescence is the intentional design of products to have a limited useful life, like technology that quickly becomes outdated or nylons that run easily, prompting repurchase. This concept differs from the depreciation of property value due to negative external factors.
An example of external obsolescence is when a well-maintained home is situated in an area with run-down homes. In this case, the value of the well-maintained home can decrease due to the negative influence of the surrounding properties.
External factors like the condition of neighboring properties, the presence of crime, or poor infrastructure can impact the desirability and value of a property, resulting in external obsolescence.