Texas Property Tax Consultant Practice Exam

Which of the following is true about economic obsolescence?

1. It is always reversible

2. It affects properties regardless of management decisions

3. It increases property value

4. It is solely dependent on the physical condition of the property

The correct answer is: It affects properties regardless of management decisions

Economic obsolescence refers to a reduction in a property's value due to factors external to the property itself, which are often beyond the owner's control. This type of obsolescence can stem from broader economic conditions, changes in community demographics, or the presence of undesirable developments in proximity to the property. The statement that economic obsolescence affects properties regardless of management decisions accurately reflects this concept. For instance, if a new highway is built that redirects traffic away from a commercial property, or if a nearby industry pollutes the area, the property may lose value independently of how well it is managed or maintained. These external factors can diminish the property's desirability and marketability, leading to a decrease in value that cannot be rectified by the owner's actions alone. Other choices do not align with the understanding of economic obsolescence—this type of obsolescence is not always reversible because it often stems from those external factors that may persist despite management efforts. It does not increase property value; rather, it leads to a decline in value. It is also not solely dependent on the physical condition, as it is influenced by external economic conditions rather than the property's own physical attributes.