What is the difference between physical obsolescence and economic obsolescence?

The distinction between physical obsolescence and economic obsolescence is crucial in the field of appraisal, and option B accurately captures that difference.

Physical obsolescence refers to the loss of value due to the physical deterioration of a property. This can manifest as wear and tear, aging, or damage that necessitates repairs or upgrades. Such factors are inherently tied to the property itself and can be associated with its structural integrity or aesthetic condition. For example, an older home may have outdated plumbing, peeling paint, or a roof that needs replacement, all of which reduce its market value.

On the other hand, economic obsolescence, also known as external obsolescence, arises from external factors that affect the desirability or value of a property, but are not related to its physical structure. This could include shifts in the neighborhood that make an area less desirable, such as increased crime rates, environmental hazards, changes in zoning laws, or a downturn in the local economy. These external influences can significantly impact the property's market value, regardless of its physical condition.

Thus, recognizing the differences between these two types of obsolescence is essential for accurately assessing property value.