A home’s outdated floor plan cannot be economically corrected. This is:

Incurable functional obsolescence

A regional landfill opens next to a well-maintained subdivision and values there fall. The resulting loss in value is:

Curable functional obsolescence

Exam vocabulary · form of depreciation

What Is External Obsolescence in Real Estate?

Definition

External obsolescence is loss in value caused by something outside the property lines, such as a new highway, a nearby landfill, or a decline in the local job market. It is always treated as incurable, because the owner cannot fix the cause, and that is what separates it from functional obsolescence.

How the exam tests external obsolescence

These mirror the phrasing you will see on test day. Answer them, then read the explanation whether or not you got it right.

External Obsolescence: exam questions1/4

Valuation

External obsolescence is generally regarded as incurable because:

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Every external obsolescence question, answered

Every question above with its correct answer and the reasoning behind it. Read the explanations for the ones you answered correctly too. A lucky guess and knowing the rule look identical on a score report. These are sample questions from our larger bank.

1. External obsolescence is generally regarded as incurable because:
- AIt affects only the site and never the improvements
- BIt can be corrected only by having the parcel rezoned
- CThe cost to cure always exceeds half of the value of the building
- DThe cause lies outside the property and beyond the owner's controlcorrect
Why: External obsolescence is incurable because "The cause lies outside the property and beyond the owner's control", such as a nearby freeway or plant. A fixed cost-to-cure ratio is not the test, and rezoning cannot remove an existing off-site nuisance.
Valuation
2. A home’s outdated floor plan cannot be economically corrected. This is:
- AEconomic appreciation
- BCurable physical deterioration
- CIncurable functional obsolescencecorrect
- DExternal obsolescence
Why: Functional obsolescence is a defect within the property itself; incurable means the cost of fixing it exceeds the value it would add. External obsolescence comes from outside the boundaries.
Valuation
3. A house loses value because a landfill opens two streets away. This is:
- AExternal obsolescencecorrect
- BCurable depreciation
- CPhysical deterioration
- DFunctional obsolescence
Why: External obsolescence originates outside the property boundaries and is always incurable by the owner, because nothing done on the parcel can remove the landfill.
Valuation
4. A regional landfill opens next to a well-maintained subdivision and values there fall. The resulting loss in value is:
- AExternal obsolescencecorrect
- BFunctional obsolescence
- CPhysical deterioration
- DCurable functional obsolescence
Why: A negative influence originating off the property is "External obsolescence", sometimes called economic obsolescence. Functional obsolescence would require a flaw in the improvement itself, and the homes here are unchanged.
Valuation

Where external obsolescence sits in the exam vocabulary

External Obsolescence is a form of depreciation, and so are functional obsolescence. That matters more than it sounds: a multiple-choice item builds its wrong answers out of siblings like these, because they are the options that look plausible to someone who has learned the category but not the distinction. If external obsolescence appears as the correct answer, expect to see functional obsolescence on the same screen.

The exam most often tries to catch you by putting external obsolescence next to functional obsolescence. Each of those is a real concept sitting close enough to be tempting, and the question usually turns on the single feature that separates them rather than on the definition of either one. Read the contrast, not the term.

Related exam terms

Tested alongside

functional obsolescence

Often confused with

functional obsolescence

External Obsolescence belongs to the form of depreciation family of exam concepts. When it is solid, take the free real estate exam prep or browse the full real estate exam vocabulary.