Real Estate National Valuation Practice Test

Economic obsolescence, often referred to as external obsolescence, occurs when a property's value decreases due to factors outside of the property itself. These factors can be related to the economy, the surrounding area, or undesirable environmental conditions.

The scenario of a house abutting a closed factory exemplifies economic obsolescence because the presence of the closed factory can have negative implications for the neighborhood, affecting property values. The closed factory might create a perception of decline within the community, which can deter potential buyers or renters, leading to a loss in the property's value.

In contrast, the other options pertain more to physical issues related to the condition of the property. For instance, having a certain number of bedrooms or bathrooms, lack of insulation, or lack of paint are all concerns tied to the physical structure and features of the property itself rather than external factors. These issues may affect functional obsolescence or economic desirability but do not fit the definition of economic obsolescence, which specifically arises from external influences.