PSI New Jersey Real Estate State Practice Exam

What does it indicate when a motel's appraisal shows limited customer access due to the rerouting of a highway?

1. Economic obsolescence

2. Physical deterioration

3. Functional obsolescence

4. Market value decrease

The correct answer is: Economic obsolescence

When a motel's appraisal reveals limited customer access due to the rerouting of a highway, this signifies economic obsolescence. Economic obsolescence refers to a reduction in a property's value due to factors that are external to the property itself. In this case, the rerouting of the highway has created a situation where customers have diminished access to the motel, making it less desirable and reducing its ability to generate income. This change is not a result of the condition of the motel or its design but rather an external economic factor influencing its market value. Physical deterioration would relate to the physical condition of the motel itself, such as wear and tear that impacts its structural integrity. Functional obsolescence would refer to issues within the property that render it less useful or desirable, such as outdated designs or inadequate facilities. A market value decrease can occur as a consequence of various factors but does not specifically address the direct cause, which, in this scenario, is the external change in accessibility due to the highway's rerouting. Thus, economic obsolescence is the most accurate term to describe this situation.