Which of the following terms best describes depreciation caused by external factors?

The term that best describes depreciation caused by external factors is economic obsolescence. This type of depreciation occurs when a property declines in value due to external influences that are typically beyond the owner’s control. Examples include changes in the local economy, such as the closure of nearby businesses, or shifts in demographic trends that affect demand for properties in that area. Essentially, economic obsolescence is rooted in how external economic conditions affect property values.

In contrast, functional obsolescence refers to a loss in value due to outdated features or design flaws within the property itself, rather than outside influences. Physical deterioration relates to the wear and tear of a property over time, including issues like structural damage or decay, which stem from the property's age and condition. Environmental obsolescence often overlaps with economic obsolescence but is more closely associated with specific environmental factors, such as pollution or undesirable changes in the surrounding area that affect property desirability.

Understanding these terms is crucial for proper property assessment as they help in identifying the various reasons a property's value may decrease, particularly those influencing it externally.